India’s economic outlook has been saved
India’s economic outlook
Just when uncertainties associated with the COVID-19 pandemic were declining, the Russia- Ukraine crisis escalated. Consequently, India’s growth outlook appears to have clouded. Crude oil prices are lingering above US$100 per barrel, and wheat and cereal prices have gone up several times—all of which are critical imports from the two warring nations. India also partly meets its fertilizer needs from the region. For India, which has been battling inflation for a while now, this situation is making matters worse. Higher fuel and fertilizer prices will reduce government revenues and increase subsidy costs. Furthermore, capital outflows and rising import bills will weigh on the current account balance and currency valuation.
Despite the external shocks, we believe that India’s underlying economic fundamentals are strong and despite the short-term turbulence, the impact on the long-term outlook will be marginal. Because of the heightened uncertainties during January—March 2022, thanks to the surge in Omicron variant and the war, we have revised down our growth projections for the entire fiscal year by 45 bps. However, growth will be strong in the next two quarters. growth-enhancing policies and schemes, increased infrastructure spending, rising exports, rapid digitization, and spill-over effects of geopolitical developments will likely aid in growth. To read more, click here.