The inflationary spiral continues as Supply Chain bottlenecks persist
The war in Ukraine is a major player in preventing some essentials from reaching India, and as of now, it persists in a full-blown mode—the government is overseeing one of the highest inflation rates.
Hyderabad: Back in late 2023, India’s growth projections from the World Bank dropped to 6.5 percent, up from 7.4 percent. The difference was to do with setbacks in the supply chains that have also affected many other countries globally.
The war in Ukraine is a major player in preventing some essentials from reaching India, and as of now, it persists in a full-blown mode—the government is overseeing one of the highest inflation rates. Noteworthy, India had a strong post-Covid recovery that saw its economy swing by and become one of the top five in the world. While impressive, the economy was only rushing to recover some lost ground, and the value clawed back by inactivity during Covid.
However, supply chain issues are still rife, with some essential commodities still difficult to source and bring to mainland India.
Supply Chain Bottlenecks
The greatest challenge to sourcing goods and services to India remains the war between Russia and Ukraine. One year later, the war seemingly will not end as the two warring sides do not seem interested in a negotiated truce. While the war is at full steam, some positives such as the grain deal have helped push for the safe movement of food products.
Agreements are a relief to India’s food security, which remains the substantial reason for record inflation, but that is not enough for the world’s most populous country. Indian companies are now forced to source products in other markets, making them wait at the back of the queues as other customers receive their share first.
Companies are also rushing to cover some gaps left in the Covid era, which has exposed India and many other countries to record high inflation. During Covid, demand for a majority of items was at an all-time low, prompting some companies to shut down.
After Covid, it has taken a lot of effort, and a staggering price increase to recover the supply chains to bring them closer to pre-covid era days. The efforts seem to bear fruit, but the record inflation shows that it will take months to bridge the gaps, even as central banks step in to push inflation down.
Imports and Exports
While India is yet to make its Q1 performance known in 2023, the last WTO estimate shows the country’s exports to drop from about 3 to 1 percent in 2023. The figures show that India is not unique to the chaos that has hit the supply chains. A contracted export volume in India highlights most Asian countries with considerable sizes are all having supply chain issues and are re-directing some of their producers to focus on the internal market.
Noteworthy, India’s exports went down for the first time in September 2022, which was the first in about 20 months.
Positives
The service sector in India has continued to prove resilient as other sectors continue to wait for the supply issues to resolve. The sector has boosted India’s reserves, which have continued to help improve supply chain issues that persist.
In Q3, the country will probably witness a reverse in the supply chain problem, with the faster movement of goods and services, which might be key in lowering inflation. Since Covid, the Indian government has focused on strengthening enterprises, which are at the heart of driving the economy forward. Employment is high in India, and its currency is stable compared to other major ones used in trade.
Nonetheless, the country still faces some uncertainties because of the increased cost of doing business. Inflation has made sourcing some goods and services more expensive. Manufacturing will feel the heat for a while, but in the long term, the country will recover.
Further, the full extent of the war in Eastern Europe is unknown, meaning any recovery plans in any sector must put this into consideration.
Bottom Line
The past year has highlighted India’s economic resilience. The country posted one of the considerable growth figures in the world, which has helped it clinch a spot in the top five. However, amidst the growth, challenges exist, which have created record inflation and an economic situation. The resilience of the economy has seen the country through the record inflation that will go away when supply bottlenecks resolve fully.
