‘India faces low growth, high inflation test’
BENGALURU: Soaring global commodity prices and disruptions in supplies due to the Russia-Ukraine conflict pose a twin challenge to the Indian economy —growth may slow down while inflation could remain elevated, the ministry of finance said in its Monthly Economic Review released on Thursday.
However, it added, the magnitude of the impact would depend on how long high prices persist.
It said the government was exploring all options, including import diversification, to procure crude oil at an affordable price. But in case high international crude prices persisted for long, it could hamper India’s prospects of achieving an over-8% economic growth rate in 2022-23, it said.
The Economic Survey had in January projected India’s economy to grow between 8 and 8.5% in 2022-23.
“In the spirit of Atmanirbhar Bharat, that places national economic and security interests above any other consideration, government is exploring all viable options… to procure crude at an affordable price. Affordability is desired as even the present level of international crude price, should it persist for a long time, may come in the way of India achieving a real economic growth rate north of 8% in FY23,” the ministry of finance said in its report. However, the domestic economic momentum seen in the massive government capital expenditure, rise in indirect tax collections and import of capital goods offer comfort, so that the impact on the Indian economy may turn out to be “tolerable”, it added.
Russia is reported to have offered India oil at a discount of as much as $35 per barrel on prices before the war and New Delhi has taken up the offer. Brent Crude oil price, which forms the bulk of Indian crude oil basket has hovered around $105-106 per barrel since April 1.
The ministry said that while India may feel the impact of the geopolitical conflict on the growth outlook, the magnitude will depend on how long the dislocations in energy and food markets persist in the financial year and how resilient India’s economy is to mitigate the impact. Transient shocks may not have a big effect on real growth and inflation, it said, and the economy may prove resilient owing to government’s thrust on capital expenditure and improved corporate sector health. The Budget allocated ₹7.5 trillion towards capital expenditure in 2022-23, which is 24% more than the revised estimates of 2021-22.
Offsetting these potential headwinds, the report said flagship government projects including GatiShakti and PLI Schemes will drive investment. “These will combine with supply chains strengthened by structural reforms taken in the past few years to deliver high-post-recovery growth for the Indian economy.” It added that the growth path ahead will likely be a more inclusive one as the government has extended free foodgrain support for the poor by another six months. Besides there is growing evidence of improving labour force participation and declining unemployment, it added.