For the better part of this millennium’s second decade (2010-2020), India remained the world’s first growing major economy. That standing of being the primary global growth engine, however, fell apart after the deceleration that started around 2018, before crashing to a four-decade low last year, pummelled by the devastating consequences that COVID-19 inflicted across the world.
That said, while the mountain of debris of this ruin is still visible, the repair work has gathered pace. This is showing up in the phraseology of commentaries too.
According to the International Monetary Fund (IMF), India’s gross domestic product (GDP) will likely grow 9.5 percent in 2021, making it regain its lost status as the world’s fastest-growing economy.
It will grow faster than China’s projected 8.5 percent, and outpace all other major economies.
The story, however, gets better for India in the coming. China’s growth is set to slow down to 5.6 percent in 2022, while India, seen at this point, will likely grow 8.5 percent.
This mirrors very healthy prospects for it implies that the nature of the rebound is more sticky, and not a one-off statistical phenomenon magnified by a low base of a collapsing economy in 2020.
It could get better still, for next year’s projections are predicated upon what analysts are foreseeing in conditions as of now.
In 2021, the growth projection was raised from 6 percent in January to 12.5 percent in April, only to be revised lower to 9.5 percent in June; the same projection has been retained in October as well. This is because the second wave of the pandemic hit India harder than the first. For 2022, the IMF has raised the growth projection from 6.9 percent in April to 8.5 percent in June, a figure it retained in October.
The IMF’s bullish projections about India come less than 10 days after the ratings agency, Moody’s Investors Service, on October 5, revised India’s credit rating outlook to stable from negative, on healthier prospects of the financial sector, cutting potential impairment to the broader economy.
All of this should augur well for Finance Minister Nirmala Sitharaman and her team as they brainstorm to prepare for next year’s Budget. In many respects, 2022 is a special year for India. It is the 75th year of India’s Independence.
The crucial assembly polls in politically important states of Uttar Pradesh and Punjab will be held in February and early March.
Sitharaman, who will present the Union Budget for 2022-23 on February 1, will have to respond to the following broad set of challenges.
How do you raise people’s income, particularly among the poor, and the marginalised who have been affected the most? How do you frame policies to enable rapid employment opportunities, particularly for the semi-skilled, and the unskilled? How do you offer India’s farmers a better deal without compromising on the government’s reformist intent? How do you scale up India’s health infrastructure to make it affordable, and accessible to all? How do you ensure that India’s banks remain healthy enough to be able to lend? How do you raise revenues to spend your way out of this crisis without taxing too much, and borrowing beyond your means?
There will be two key determinants to sustain a stronger, and stable rebound. One, consumer spending during the festive season in October-November. Two, containment of a possible third wave during the winter, which will be a function of the pace of vaccination.
The Budget will come at a time when India will be preparing for a third COVID-19 booster shot to its citizens. The Budget may well be the occasion for injecting booster shots to the economy.
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