Economy

Published: Mar 24, 2023
Updated: Mar 24, 2023

India's Economic Outlook: Stability amidst Global Uncertainties

As the US Federal Reserve announces aggressive monetary tightening, the global financial system braces itself for yet another crisis. But how will this uncertainty impact India? Here are three charts that shed light on India's economic performance.

The opposite of “irrational exuberance” at the moment

The Indian economy is currently in the opposite state of “irrational exuberance”. The private sector has a pessimistic view about the economy's future, leading to a fall in new investment announcements. However, this also means a lower probability of a post-2008 crisis of bad loans, which severely affected investments and growth.

Fall in export growth is only the restoration of the new normal

The Indian economy has been living in a low export growth phase after the 2008 global financial crisis. While the net impact of exports on GDP must account for imports as well, rise in exports generates a positive effect for jobs and incomes for domestic workers. Merchandise exports as a share of GDP saw a consistent rise in the decade preceding the crisis and reached a peak of over 16% in 2011-12. This number had fallen gradually to 11% by 2019-20 before showing a spike to 13.4% in 2021-22. The spike seen in 2021-22 is expected to come down as the global economy slows down. But it will only be a return to the new normal of exports mattering less for the economy in the recent past.

But stability comes at a cost—growth

While the pre-2008 growth boom was driven by exports and bullish investor sentiment, the fact remains that it delivered high growth. The period after 2008, especially the second half of the last decade, did not have these destabilizing factors but was also low on growth even before the pandemic hit. India can take reasonable solace from the fact that global turbulence will have a relatively milder impact on its economy at the moment, but it needs higher growth to fulfill its economic aspirations. As of now, the drivers of such growth do not seem to be in sight.

Stability comes at cost of sacrificing growth

India seems to be experiencing stability amidst global uncertainties. The private sector's pessimistic view is contributing to a lower probability of a crisis of bad loans, while the fall in export growth is only the restoration of the new normal. However, this stability comes at a cost of lower growth, and India needs to identify drivers of higher growth to fulfill its economic aspirations