India’s Resilience in the Face of Global Headwinds

Global Markets are witnessing continuous headwinds like inflation, the energy crisis, the Russia-Ukraine war, supply chain disruption, tightening of monetary policies, etc. While all this has brought European and American countries to the brink of a crisis, many South Asian countries showed their potential to end the domination of developed economies. Moreover, India has emerged as a leader in developing economies and showed better resilience from global headwinds as compared to other nations. 

India’s Growth Rate

In December 2022, the World Bank revised its GDP forecast for 2022-23 to 6.9 percent from 6.5 percent (Oct’22) considering a strong outturn in India in the second quarter of FY 2022-23. As per the report of the World Bank titled ‘Navigating the Storm’, the Indian economy has grown rapidly in July-September 2022 as compared to other emerging economies such as China, Mexico, Brazil, Indonesia, Malaysia and the Philippines. 

Inflationary Pressure

Global inflationary pressures affected countries worldwide. Governments worldwide tried to increase consumer spending to revive their economies after the pandemic. Later, the rising commodity prices, freight prices and supply chain disruption due to the Russia-Ukraine war further added to these inflation pressures. This led to record inflation numbers in many advanced and emerging economies. However, India battled inflation much better than its counterparts. According to the Economic Survey 2021-22, consumer price inflation in India was 5.6% in December 2021. Contrary to this, the inflation in the US hit 7 per cent in December 2021 and in the UK it reached a nearly 30-year high of 5.4 percent for the same period. In the emerging markets, Brazil touched 10.1 percent in December 2021. 

In the year 2022, inflation peaked further due to the energy crisis and rising food prices. By the Nov’22, most of the countries nearly recovered from the rising inflation rate. In Nov’22, India improved its inflation rate from 6.77% to 5.88%. Brazil also saw a decline from 6.47% to 5.9%. While US and UK have seen slight improvement and have attained an inflation rate of 7.1% and 10.7% respectively.  

Monetary Policies

RBI hiked the repo rate in four successive meetings to 5.9 percent in Nov’22. To reduce the liquidity in the system, RBI has been regulating currency in circulation by withdrawing regulatory relaxations, increasing the cash reserve ratio and through Variable Rate Reverse repo rate auctions. RBI has been taking out excess liquidity since Jan 2021 through the VRRR auction route. The Central bank started by taking out Rs. 2 lakh crore fortnightly in 2021 which was increased to Rs. 4 lakh crore for the fortnight ending 24th Sept’22. RBI’s stance has proven much more effective for India where it is trying to balance between rising inflation and economic growth. 

International Trade Volume

India had set an ambitious export target of US$ 400 billion for FY 2021-22. It has attained more than 75% of its target by December 2021 by exporting US$ 301.4 billion. India mainly exports to the USA followed by UAE and China. Among the export commodities, Petroleum products continued to be the most exported commodity followed by Pearl, Precious, Semiprecious stones and Iron & Steel. But, in the Q1 of FY22-23, merchandise imports outgrew the exports resulting in the trade deficit. 

Currency Performance

Though the Rupee depreciated by 11% Y-o-Y till Oct’22, it outperformed most emerging market currencies. RBI which holds one of the largest foreign exchange reserves in the world continuously intervened to mitigate the volatility in the Indian currency. 

As per the report of World Bank 2022, India is much more resilient to global spillovers as compared to the US, China, the Euro area and other EMEs. The report highlighted the possible slowdown in the US and Euro area due to high energy costs, supply chain disruptions, and tightening of monetary policy. While China has been experiencing a slowdown due to pandemic levels and extreme weather conditions. This gives an edge to EMEs with especially India leading the way. World Bank gives credit to India’s better economic fundamentals, large forex reserves and prudent macroeconomic management. 

To be concluded

It is believed that India could become the third-largest economy by 2027 and could become a $7.5 trillion economy by 2031. According to a study, 52% of individuals believe that doing business in India has become a lot easier. With global confidence and strong economic policies, India is definitely making a strong place in the world order.