Will Global rising inflation, the concern of US Economy Stagflation, and China's slow Economic Growth halt India's Economic growth? To gain such Insights about Economic News and learn with Case Studies and Live Analysis, Visit Best Stock Market Institute in Indore. They will guide you with practical analysis in trading, Investment and Career Oriented Courses with 100% placement.
Last Week, on 12th October 2021, the International Monetary Fund (IMF) maintained India's GDP growth forecast for FY22 and FY23 at 9.5% and 8.5% in its recent World Economic Outlook report. Further, India is projected to be the fastest-growing economy for the Next two years. Finance Minister Nirmala Sitaraman highlighted keeping the liquidity stimulus and central bank policy easy as the country recovers from COVID-19. The Central Bank, too, is projecting the same growth in its recent monetary policy meeting.
The India Growth story is also showing in Economic Indicators on a Month-on-Month basis by showing an upward tick.
The Indian Economy has opened up and recovered from the shock of the second wave and almost reached pre-COVID levels due to high vaccination and falling cases, which is a positive sign for further growth.
Economic Indicators of Industrial Production, Cement and Steel Consumption, Capital Goods and Consumer Goods Output, and Manufacturing Goods Index have seen robust sequential growth consistently and have almost reached 2019 levels.
Due to increased consumption demand, GST collection is robust and reached more than 10% higher than pre-COVID levels.
The government of India have ensured liquidity boost to support the economy, sale of asset monetization plan including IPO of LIC, Air India Sale, aggressive divestment of government-owned companies, sector-specific schemes, and agriculture reforms. This has led to the recovery of the V-shape in the Indian economy. COVID-19 vaccine access and aggressive vaccination programs have led to a steadfast economy opening up after the second wave's impact. At the current pace of vaccination, India will be able to administer doses to all adults fully by the end of March 2022. Due to this, the economic activity in all sectors, however uneven, has led to rapid recovery in all sectors, supported by increased demand from consumers.
Indian Export and Import Sector have increased due to pent-up demand in the global economy and increased energy and metal prices. There needs to be a bit of caution as the same can lead to an increase in inflation, which can have a negative impact, and central banks' increase in interest rate can lead to slowing growth going further.
Capital expenditure by asset-heavy models like real estate, infrastructure, transport and power is yet to kick off as no major capex expansion is seen in this sector. Manufacturing capex is the only sector which has seen significant growth. The service industry has contributed to the current economic recovery to a significant extent. This uneven growth is the negative factor, and the recovery in the asset-heavy model will be the key to further growth going forward.
The Government of India's stimulus to boost the recovery was met by a high budget deficit of 8% and 6.8% in 2020 and 2021 by disinvestment. It would not be possible to increase the deficit further, and the government would have to shrink to meet its long-term policy stance. Even Central Banks have reduced interest rates to historical lows and reached their limits, so the onus will be on the government for effective fiscal policy to ensure further growth, incentives, and PLI schemes for manufacturing and agriculture sectors. Budget 2022 will play a key driver for further economic growth.
High inflation in the global economy due to a surge in commodity and energy prices poses a risk to India's growth trajectory. The rising inflation is due to supply-side constraints during the pandemic. Current inflation trajectory in metals and energy is continuously increasing higher than expected by central banks across the globe. The US Central Bank will start increasing interest rates by mid-2022 and stop the asset purchase programs that have infused liquidity in global markets. This can lead to an outflow from the Indian stock market. Slow growth and rising inflation can lead to stagflation in the global economy, which is a serious cause of concern for Stock Markets in India and global markets. The central banks in India will have to start increasing interest rates due to headline inflation exceeding 6% consistently. There is also concern about Chinese companies' debt and the Chinese economy's slow growth. This is the key cause of concern in global equity markets, which can lead to a downward spiral in Indian and Global equity markets.
The global equity markets have rapidly recovered and made new highs due to liquidity boosts and low interest rates and have rebounded from the aftershock of COVID-19. Further, fiscal policy measures and economic reforms can only sustain the current rally. The global cause of concern is rising headline inflation due to a surge in commodity and energy prices, which can force central banks to increase interest rates, lower consumer spending and consumption, slow real growth, and derail the current stock market rally.
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