India's Economic growth to Decline to 5.7% in 2022: UNCTAD report

India’s economic growth is expected to decline to 5.7 per cent this year from 8.2 per cent in 2021, citing higher financing cost and weaker public expenditures, according to the forecast by the United Nations Conference on Trade and Development (UNCTAD) Trade and Development Report 2022.

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From Growth To Slowdown:

The country’s GDP will further decelerate to 4.7 per cent growth in 2023, the top UN agency projected. India experienced an expansion of 8.2 per cent in 2021, the strongest among G20 countries. As supply chain disruptions eased, rising domestic demand turned the current account surplus into a deficit, and growth decelerated, the report stated.

What The Report Said:

As supply chain disruptions eased, rising domestic demand turned the current account surplus into a deficit, and growth decelerated, the report said. It noted that the Production-Linked Incentive Scheme introduced by the government is incentivising corporate investment, but rising import bills for fossil energy are deepening the trade deficit and eroding the import coverage capacity of foreign exchange reserves. As economic activity is hampered by higher financing costs and weaker public expenditures, GDP growth is projected to decelerate to 5.7 percent in 2022,” it explained.

Govt Approach:

The government has announced plans to increase capital expenditure, especially in the rail and road sector, but in a weakening global economy, policymakers will be under pressure to reduce fiscal imbalances, and this may lead to falling expenditures elsewhere. Under these conditions, the economy is expected to decelerate to 4.7 percent growth in 2023, the report forecasted.

Forecast About South Asia:

UNCTAD said it expects the South Asia region to expand at a pace of 4.9 percent in 2022, as inflation increases on the back of high energy prices, exacerbating balance of payment constraints and forcing several governments (Bangladesh, Sri Lanka,) to restrict energy consumption.

Moreover, the limited and delayed progress in relaxing vaccine-related intellectual property (IP) rights continues to leave the region vulnerable to future outbreaks. For 2023, UNCTAD expects the region’s growth rate to decelerate slightly to 4.1 percent, it noted.

The Energy Crisis:

Various developments in the wake of Russia’s invasion of Ukraine, including the US ban on oil imports from Russia, and prohibition of shipping insurance for Russian oil exports, have exerted more pressure on oil markets, it said. However, the release of 180 million barrels from the United States’ strategic petroleum reserves as well as the readiness of both China and India to receive Russian oil exports proved sufficient to ensure that global oil supplies did not tighten further, it said. The report noted that after a rapid but uneven recovery in 2021, the world economy is in the midst of cascading and multiplying crises, with incomes still below 2019 levels in many major economies.

World Prospects:

UNCTAD projects that the US economy will grow at 1.9 percent in 2022, a decline from 5.7 percent in 2021, and will further slow down to 0.9 percent in 2023. Meanwhile, China’s economic growth is projected to be 3.9 percent in 2022, a decline from 8.1 percent in 2021, and a 5.3 percent growth next year. The report added that the share of commodities in China’s and Egypt’s imports is 38 percent, and more than 50 percent of India’s imports are (primary) commodities including food and fuel. As a result, higher commodity prices have a strong impact on domestic prices via imports. Recent estimates covering the past five decades suggest a 50 percent increase in oil prices (approximately the increase in 2021) is associated with an increase in inflation of between 3.5 and 4.4 percentage points, with a lag of about two years.

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