Pointing out that the economic impact of the Omicron wave remains minimal, high frequency indicators indicate that Indian economy is likely to grow more than 9% in the current financial year, in line with the advance estimates incorporated in the Economic Survey tabled earlier this month, notes the finance ministry in its monthly economic review for January. On price rise, the report projects that inflation for the current year is set to close within RBI’s tolerance band.

“...the impact of third wave on economic activity has been much weaker than the previous two waves. High frequency indicators show that India’s economy is well on its way to growing at above 9 per cent as projected in the country’s advance estimates for the current year. With MPC retaining its inflation forecast for 2021-22 at 5.3 per cent, the inflation for the current year is set to close within its tolerance band of 4±2 per cent,” says the economic review.

In the first advance estimates, the Economic Survey 2021-22 estimates India’s GDP to grow at 9.2% in 2021-22, pegging the economic growth rate for the next fiscal in the range of 8-8.5%. The Survey does caution against adverse impact of a new Covid-19 variant derailing growth plans in future. On the inflation front, retail inflation hardened to 6.01% in January, crossing the RBI tolerance range of 2-6%. In response, central bank governor Shaktikanta Das has said that the inflation rate for last month should not surprise or create any alarm.

“Global inflation and energy prices are likely to be influential in determining India’s rate of inflation and government expects it to decline to eventually obtain a GDP deflator of 3-3.5 per cent assumed in the Budget 2022-23,” the review report says.

The ministry further estimates in the monthly economic review that the Indian economy will grow the quickest among large nations during financial year 2022-23.

“IMF in its January 2022 update has lowered its global growth estimate for 2022. Yet India is the only large and major country listed by the IMF whose growth projection has been revised upwards in 2022 (read 2022-23)... the Indian economy that contracted by (-)6.6 per cent in 2020-21, is now projected in 2022-23 to grow the quickest among the league of large nations,” the report reads.

The finance ministry expects consumption and demand to pick once the uncertainty and anxiety due to Covid-19 pandemic recedes from people’s minds. This will, in turn, facilitate the private sector to inject investments to augment production to meet the rising demand. Barring external shocks – geo-political and economic – this scenario should play out for the Indian economy in 2022-23, it adds in its review.

Talking about the increased capex spend in Union Budget 2022-23, the economic review says it “will be financed by both domestic and foreign savings within the fiscal deficit of 6.4 per cent of GDP budgeted for central government and an additional 4 per cent capped for the state governments”. The fixed investment rate in India’s economy is poised to rise further from its 2021-22 ratio of 29.6 per cent of GDP, it adds.

“Private investment will also be financed by both domestic and foreign savings as public sector banks (PSBs) improve their financial health to play a greater role in credit intermediation. In particular, PSBs will further reach out to MSMEs on the strength of emergency credit linked guarantee scheme (ECLGS), which the Budget 2022-23 has extended by one year with enhanced guarantee coverage,” the report says.

The economic review says that foreign savings are also expected to play a greater role in financing investment, as seen in the rising foreign direct investment (FDI) inflows.

Moreover, it observes that India’s equity market is well capitalised with both domestic and foreign savings to provide equity financing for investment, as initial public offers (IPOs), both in numbers and value, reach record levels in the current year.

“Private consumption will grow cautiously as precautionary demand for money will rise at every hint of a new infection. Private investment, helped by the complementary support of public investment in infrastructure, will continue to gain traction from the ethos of Atmanirbhar Bharat,” the report says.

“Growth in exports will sustain provided the global economy does not slowdown. Key to medium term gains in export growth lies in improving the competitiveness and complexity of India’s products. Imports will also grow but re-aligned to the country’s requirements of what is not available within. Growth will be inclusive and large enough as well, to provide for growing levels of direct income and in-kind support to the vulnerable groups of the society,” it further adds.

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