Economy likely to see steady growth in 2022 – The Hindu BusinessLine

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Despite impediments like Omicron, and weak job and growth impulses, strong exports and capex could help revive growth

The coronavirus pandemic continues to pose questions about the Indian economic recovery going into 2022. After the second wave of the pandemic, GDP has broadly returned to its pre-pandemic size in the July-August quarter.

The primary impediment is the emergence of the Omicron variant. Initial research shows that the variant is more transmissible than Delta, but the severity of the disease caused is unclear.

Sixty per cent of the Indian population is inoculated with one dose of the vaccine and 40 per cent with two doses; this may help stem a large wave of infections. However, the efficacy of domestically used vaccines against the variant is also unclear.

Our healthcare system though, is in better shape to deal with a surge in hospitalisations than it was during the second wave.

A useful statistic that is a signal for fast and broad-based growth is the employment rate (share of the working-age population that is employed). The employment rate in India stands at slightly less than 38 per cent in December 2021, according to data provided by the Centre for Monitoring Indian Economy.

This is significantly less than the 40 per cent employment rate at the start of 2020, which equates to about two crore fewer people working than would have been the case otherwise.

This may be a result of a structural change in the labour market created by the pandemic or maybe just people dropping out of the labour force owing to an inability to find employment. In any case, getting this large number of people working again, in addition to the continuous new entrants in the labour force will be a momentous task.

And all this at a time when recent GDP data suggests that the growth impulse is still lacking, with private consumption remaining below its pre-pandemic levels and capital investments in the economy still being largely supported by public spending and not the private sector’s confidence.

Further, high inflation in the US has forced the Federal Reserve to try and pull back its monetary policy support in a hurry.

Policy tightening by many of the world’s major central banks will pose headwinds for economic growth in India, as it will suck out some of the liquidity in capital markets causing a general rise in bond yields and making a further dazzling rise in equity markets harder to maintain.

This will, in turn, also pare back the support capital markets have been providing to the economy. A possible hard landing by the Federal Reserve in its monetary tightening will also continue to pose risks for India through 2022.

Good run for exports

However, not all is gloomy! In face of all of these issues, the Indian economy has some things going for it. Exports have had a stellar run, partly owing to unprecedented fiscal stimulus in the Western economies; this should continue to provide much-needed support to the domestic economy.

India may also be on the verge of a multi-year capital expenditure cycle, which is key to sustained economic growth. This would be a result of the government’s push for the infrastructural pipeline, continued investments supported by the Production Linked Incentive (PLI) schemes, improved corporate balance sheet throughout the pandemic, and a healthier-than-expected banking system that will be more able to provide lending.

The pandemic also saw the government taking a more serious approach towards economic policies and further recognition of their importance in India’s growth story, as shown by the liberalisation of labour laws and their efforts to liberalise the now-retracted farm laws.

A more vigorous approach towards privatisation, with the government prioritising having a limited presence only in sectors deemed of strategic importance, will also help induce efficiencies in many different parts of the economy. This will certainly act as a tailwind for the country.

Risks facing the Indian economy might keep it from achieving extraordinary growth in 2022, economists expect GDP to grow at around 7 per cent in FY23 after two years of lost growth. Nevertheless, 2022 will help in setting the base for steady, strong and sustainable growth over the medium to long term.

The writer is President, IMC Chamber of Commerce and Industry

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