Editorial: Recovery hits hurdles
The pace of economic recovery appears to have lost momentum in the third quarter of the current financial year. Added to this are the fresh worries over the possible impact of the Russian war on Ukraine. The latest data released by the National Statistical Office (NSO) revealed that the Indian economy grew at 5.4% in the third quarter of 2021-22, well below the expectations of 6.2%. For the full year, the economy is now expected to grow at 8.9%, lower than the NSO’s earlier estimate of 9.2%. The implication is that the economic growth is likely to slow down further to 4.8% in the last quarter covering the January-March period. As a result, over the second half of this year, the growth is now expected to average only 5.1%, down from a base-effect induced 14.4% in the first half. The impact of Omicron in January, though mild, could drag further on the recovery in Q1 of 2022-23. Economists are now trimming their growth forecasts for the full year following the lower-than-expected October-December 2021 growth number, the continued impact of the pandemic and the unexpected turn of global events following the Russian attack. The growth figure as per the latest data is considerably lower than the Reserve Bank of India’s estimate, which in the December monetary policy committee meeting, had retained its projection for the full year at 9.5%, while projecting growth at 6.6% in the third quarter and 6% in the fourth quarter. This implies that the pace of recovery has moderated considerably. Moreover, the country is likely to feel the ripple effects of widening sanctions against Russia.
With geopolitical tensions escalating, the fragile recovery process could get dented. As oil prices surge, which would be inflationary, it will put pressure on India’s import bill, fiscal deficit and current account deficit, besides adding to input costs for businesses. Nearly 80% of the country’s oil needs are met through imports. As the conflict surges and Russia takes a more aggressive stance, the global demand will be hurt, which could jeopardise India’s growth story. Several parameters — inflation, unemployment, subdued private consumption and investment and a crippling informal sector — are still in the red zone and the economic recovery path is going to be long and arduous. Sectors such as construction, mining, manufacturing, agriculture, trade, hotels and transport witnessed a decline from last year. These sectors are employment-intensive, and two years of continuous drag has created a huge burden of unemployment. Virtually all the growth engines, except public investment and exports, have been struggling to restart while both private consumption and investments are yet to revive. The rural distress is of particular concern. Though manufacturing and services sectors have been adding jobs in recent months in the wake of easing of Covid-19 restrictions, rural jobs have been shrinking.
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