India’s economy still booms
Leaders expecting growth to continue in ’22, but keeping up that pace may be difficult
NEW DELHI — As global economic growth slows sharply, with many major economies gripped with worries of recession, there has been a conspicuous exception: India.
The Indian government said the country’s economy remains on track to grow by 7% or more this year, more than double the projections for global growth, which has been weighed down by Russia’s invasion of Ukraine, rising energy prices and COVID-19 lockdowns in China.
The rapid expansion in India reflects in part the depths to which the economy had fallen during the most devastating shocks of the pandemic, with lockdowns forcing an exodus of laborers from urban centers. It also reflects the insulated nature of India’s economy: It has avoided the worst of the global slump because it is driven more by local demand than exports.
But perhaps most important has been government policies, including increased public investment, relief to debtors, and credit guarantees to small- and medium-size firms hit hardest by the pandemic. Policy interventions have kept inflation — which has historically been high in India — relatively in check. And purchases of discounted oil from Russia, against the wishes of the United States and Europe, have helped buffer rising global energy prices.
“India felt some global headwinds, but the process of recovery continued,” said Sunil Sinha, the principal economist at India Ratings and Research.
In a resonant symbol of India’s growth, officials have been trumpeting the economy’s leapfrogging of Britain — the country’s former colonizer now grappling with soaring inflation — to become the world’s fifth largest.
“Those who ruled us for 250 years — we have left them behind to move ahead in the world economy,” Prime Minister Narendra Modi said. “We have come out of thousands of years of slavery; now is the opportunity. We will not stop.”
Left unsaid, though, is that India’s economy must support 1.4 billion people, while Britain has just 67 million. So even as the Indian government recently reported that the economy had grown year on year by 13.5% in the April-to-June quarter — slightly below its 15% expectation — it still struggles to meet the needs of a nation that is soon expected to pass China as the world’s most populous.
Private ratings agencies have slashed their growth projections for India’s economy this year by up to 1 percentage point or more, but their forecasts remain largely in the ballpark of what the Indian government expects.
Growth is projected to slow next year to about 6%.
Before the pandemic, the Indian economy was losing steam. India now is only recovering ground lost over the past two-plus years.
Growth in manufacturing has remained slow even on a low base, largely because of rising costs. While India is less reliant on exports, they have been a source of strength, especially as the rupee has depreciated, but growth in imports is now more than double those in exports.
Some industries, such as hospitality and transportation, have remained below their pre-pandemic levels, analysts said.