MAY 16-MAY 22

We have been tracking the supply chain crisis, rising commodity prices, inflationary pressures, the imminent rise in interest rates and winding down of stimulus programs through our weekly newsletters over the past weeks. We have also seen how central banks from the US to India reacted to the inflation  problem.

In this edition of WIP, we shall try to cover some key aspects working in India’s favour to tackle these global and domestic headwinds threatening to put a damper on the promised 8%+ forecasted growth rate.

Inflation pains a global phenomenon, India in a much better position that most countries

India’s CEA Anantha Nageswaran says, “Compared to other nations, even among advanced countries, I think India is relatively better placed for the simple reason that India paid a certain price last decade… we had a banking system stress which was then compounded by stress in the non-banking financial sector towards 2018″. 

Some key aspects in India’s favour are as follows:

• Macro economic and policy stability: the government has taken several steps, including raising capital expenditure. Capital expenditure (capex) has been raised by 35.4% for 2022-23 to Rs 7.5 lakh crore to push the public investment-led recovery of the pandemic-battered economy. India is expected to have a growth rate of 7-8 per cent depending on the duration of the ongoing conflict.  
• Improved financial system: India has gone through a cleansing of its banking and NBFC sectors through 2018-19. Although there are still pockets of concerns, overall, the banking system is in a better position to handle a volatile economic environment and inflation related stress. 
• Robust corporate health: Indian corporates are in good financial health as they have trimmed their balance sheet. Most large operators have diversified businesses that provide for an inherent hedge against sectoral downturns.
• A proactive RBI : Prices of commodities, especially fuel and some food grains, have increased, stoking global inflation. India is relatively far more comfortably placed than other countries in this respect. The RBI has ample foreign exchange reserves and with its recent monetary policy move, it has also signaled its determination to combat the inflationary pressures.
• Proactive government actions: In a bid to curb rising inflation, Finance Minister Nirmala Sitharaman on Saturday lowered Central Excise Duty on petrol by ₹ 8 per litre and on diesel by ₹6 per litre. It also decided to cut custom duty on raw materials for plastic, iron and steel. Ujjawla beneficiaries will get a subsidy of ₹200 per cylinder for consumption up to 12 cylinders a year. The GOI had also banned wheat exports earlier this week given significant risks to the wheat output due to the heat wave. Most analysts considered this move a net positive as far as domestic inflation outlook is concerned. 
• Higher infra spend, Global Capacity Centers to create jobs: The government’s infra push has been notable, generating employment for a large section of the population. On the other hand, in the private sector, India-based captive units of multinational companies are set to increase their employee count by 180,000- 200,000 by the end of this fiscal year. Over 500 new GCCs are expected to be set up in India by 2025.  the total headcount is set to double to 3.0-3.2 million by FY25 from 1.5 million as the market size is expected to increase from US$ 60B from US$36B, according to ET.

India has seen rapid adoption of technology and power of digitally empowered enterprises which has ensured that the economy rebounded from the deep disruptive impact of COVID-19 pandemic, and will successfully overcome the current uncertainties. With Aadhaar, UPI, DBT, Account Aggregators and the proposed ONDC, India is definitely the most digitally enabled  economy and well placed to be one of the fastest growing economies of the world.