This is a considerable achievement in the global economic scenario where policy measures to tame runaway inflation are pushing major economies towards recession. Credit is also due to the resilience of domestic demand that is sustaining a smart recovery in contact-intensive services with large linkages to employment. Apprehensions of a K-shaped economic recovery from the pandemic are abating with tax buoyancy creating fiscal headroom to prop up consumption demand at the base.
Growth could surprise on the upside with GoI’s ambitious capital expenditure programme on track and the central bank approaching its terminal rate of this upcycle. Domestic food prices are stabilising while fuel inflation has flatlined. Core inflation remains elevated in a sign that the economy has not lost undue momentum.
This is corroborated by capital flows, which have reversed after initial flight. India’s longer-term policy support to domestic manufacturing is also poised to benefit from disruptions to global trade, while its comparative advantage in technology-enabled services gains from a new mosaic of bilateral free trade agreements.
Downside risks to growth and inflation could emerge from near-term setbacks to global trade, fresh spikes in world energy and food prices, and elevated credit costs. India’s relative immunity to the global slowdown, if sustained, could draw in capital that pushes up its potential growth rate.
A fractured trading system provides India an opportunity to present a more outward-looking face to the world as it fixes gaps in its infrastructure. Back-to-back international crises have burnished its credentials in economic management.