2022 a mixed bag for economy, what 2023 has in store for India's growth story?

The year ends with the news of a banking icon being arrested and the country gearing up for yet another Covid threat. But there have also been upbeat reports about India assuming the presidency of the powerful G20 global grouping and retaining the title of the fastest growing major economy. A mixed picture but it reflects the challenges and opportunities that have characterised the past 12 months.

It is ironic that virus news has gripped the country in recent days just as it had twelve months earlier in January when the third wave had spread its tentacles all over. It was a milder version then with the Omicron variant, hence hospitalisation and fatalities were much lower than in previous waves. At the time, there was a sense of relief and hope that the world would soon return to normal. This hope was belied at the end of February when Russia invaded Ukraine and there were global repercussions.

India was affected like many other emerging economies by the immediate spurt in oil prices. These shot up to over 140 dollars per barrel but then moderated to about 100 dollars per barrel for several months. This pushed up the cost of oil imports significantly for a country that buys 85 per cent of its crude oil requirements from abroad. The unexpected hardening of oil markets upset all budgetary calculations for 2022-23 as these had been made on the basis that prices would rule at around 75 to 80 dollars per barrel during the year.

The conflict in distant Ukraine also created inflationary pressures due to higher prices of a wide range of products. Manufactured goods were affected owing to the disruption in global supply chains. Key raw materials like metals also saw prices soaring to record levels. One big reason was that Russia is a major source of aluminium nickel and copper. It is also the second largest producer of platinum and the biggest of palladium which is a key component in catalytic converters.Edible oil prices similarly rose as sunflower oil imports from the Ukraine came to a halt.

Inflation consequently peaked in April at 7.78 per cent, leaving the Reserve Bank of India with no option but to abandon its accommodative monetary policy. It embarked on a series of rate hikes to cool down prices. Latest reports are that inflation has come down to 5.88 per cent in November, within the central bank's tolerance band of 2 to 6 per cent. This makes the RBI more successful in combating inflation than the central banks of many developed economies. The US, for instance, is still battling levels of inflations not seen for the past 40 years. Similarly, inflationary pressures in the UK and most European countries are at record levels. Currently, inflation has touched 8.2 per cent in the US, 9.3 per cent in the UK and ten per cent in Germany.

But the picture is not all positive. The year has been marked by huge retrenchments in the IT and software sector as well as startups. This is in line with global trends where tech companies are laying off employees in large numbers. The boom time for tech companies during the pandemic has now eased and there is no longer a need for such a large work force.

The other story that has now hit the headlines at the end of the year is the arrest of Chanda and Deepak Kochhar along with Videocon chief Venugopal Dhoot. Though the case had been under investigation for several years, it seemed as if the issue had reached a dead end as there was no progress over the past three years. The sudden arrests have put the spotlight again on Chanda Kochhar who was seen as one of the first women to break the glass ceiling in the banking industry by helming ICICI Bank.

At the same time, the year also saw the banking industry being restored to health with the level of non-performing assets coming down drastically. The gross NPA ratio for the banking industry fell to 5.9 per cent in March 2022, from 11.8 per cent in 2018, according to the RBI,

The expected economic recovery in the current fiscal, however, has slowed down owing to global headwinds that have had an impact on manufacturing and other key industrial sector. The Economic Survey had projected an ambitious growth rate of 8 to 8.5 per cent for the current fiscal but this has now been downgraded to 7 per cent. Even at this level, India is set to be the fastest growing major economy in the world. But this is not fast enough for an emerging economy seeking to eliminate poverty. To achieve this goal, it should be growing at the rate of 8 per cent annually.

One of the more positive events as the year ends is the news of India taking over the presidency of the G20. This powerful grouping of countries accounts for 85 per cent of the world's GDP and 75 per cent of global trade. Though it is a rotating presidency, it is significant that for the first time the troika heading it - past, present and future presidents - are developing countries - Indonesia, India and Brazil. The focus will have to be on achieving sustainable development goals over the next year rather than seeking any political camaraderie, given the geopolitical scenario right now.

The year has thus been a mixed bag where the economy has managed to perform better than the rest of the world but not as fast as needed for an emerging economy. The coming year is likely to pose fresh challenges with the threat of Covid rising while the economy may continue to face global headwinds that could slow down growth.