On an upward swing

In the current scenario, various national & international agencies are estimating that the GDP growth rate in FY 2022 can be around 7 per cent. It may be noted that the Reserve Bank of India had projected GDP to grow at 16.2 per cent for the first quarter.

By the current rate of growth, the Indian economy has become the fifth largest economy in the world, overtaking Britain. It is noteworthy that 10 years ago the Indian economy was ranked 11th in the world.

The main reason for the low growth in the first quarter of the current financial year is the lack of expected economic activity in the manufacturing sector. Because of this, the growth rate of this sector has been only 4.8 per cent, as compared to 49 per cent in the same period of last year. The growth rate of the agriculture sector during this period was 4.5 per cent. The sector has consistently performed well during the Corona pandemic. The construction sector grew at a record 16.8 per cent and is likely to continue in the September quarter as well. The service sector has grown at a rate of 17.6 per cent. However, sectors like hotels, transport, tourism, etc. still need special attention, as these sectors have still not reached the pre-pandemic stage.

Global rating agency Moody's Investors Service has cut India's GDP growth forecast for the fiscal year 2022 to 7.7 per cent due to a lack of growth rate as expected. Earlier in May 2022, Moody's had projected India's GDP growth rate to be 8.8 per cent for the fiscal year 2022.

One of the main reasons for the decrease in GDP growth rate is the increase in the repo rate by the Reserve Bank of India. An increase or decrease in the repo rate has a direct effect on inflation and the lending rate.

An increase in the repo rate leads to an increase in the loan rate, at the same time, the possibility of a decrease in inflation increases, because due to the increase in the repo rate, banks give loans at a higher rate, due to which people become short of money. Due to low income and the high price of products, there is a fall in demand and when there is a decrease in the demand for a product, then its price also decreases.

Inflation reduces the purchasing power of the people. Today, due to inflation, the purchasing power of the people of most countries of the world including India has reduced. However, this does not reduce the income of the people, but due to the fall in the price of the currency, people have to spend more money to buy any item, due to which they are neither able to buy the necessary goods nor save money. In such a situation, economic activities start slowing down.

In the current financial year, based on a high level of Purchasing Managers' Index (PMI), tax filings, tax collections, corporate results, credit growth, etc., it can be said that economic activity in the services and construction sectors has picked up. Goods and Services Tax (GST) collection grew 28 per cent to Rs 1.43 lakh crore in August as against Rs 1.12 crore in the same month last year. This is the sixth consecutive month that the GST collection has exceeded Rs 1.4 lakh crore. The government has already received a direct tax of Rs 4.8 lakh crore till August 30, which is 33 per cent higher than Rs 3.6 lakh crore in the same period last fiscal. According to an estimate, the tax collection may exceed the budgeted target of Rs 14.20 lakh crore in the current financial year.

Private expenditure has registered an increase of about 26 per cent in the current financial year, which is an indication that economic activity is improving. Government and private spending have reached the pre-Corona pandemic situation. In the June quarter of FY 2022, government spending grew at a rate of just 1.3 per cent, indicating that the government's drive to reduce government spending is gradually succeeding.

Inflation remains a challenge for the Reserve Bank of India, like other central banks of the world. Therefore, the central bank has to strike a balance between GDP growth and inflation to control the situation. Since the negative effects of inflation are high, therefore, the priority of the Reserve Bank of India, for the time being, is to contain inflation. There has been some moderation in inflation due to a good monsoon and the right actions by the central bank at the right time. Hence, it is expected that on the growth front, there may be further improvement in the coming months.

The GDP growth rate is being considered low because in the first quarter we were expecting GDP to grow at around 16 per cent, but the growth rate was 13.5 per cent. However, India's GDP growth rate is better than the major economies of the world. For example, China has had a GDP growth rate of 0.4 per cent during this period. Similarly, GDP grew at 1.1 per cent in Spain, 1 per cent in Italy, 0.5 per cent in France, 0.1 per cent in Germany, -0.10 per cent in Britain and -0.6 per cent in the USA during the first quarter of the current financial year.

Views expressed are personal