Despite India recording a robust double-digit economic growth in the last quarter, economists polled by Reuters expect India’s economic growth to halve this quarter due to rising interest rates and skyrocketing inflation.
India, Asia’s third-largest economy, has been battling high inflation, increasing interest rates, and unemployment for some time. Even though the Reserve Bank of India isn’t worried about persistently high inflation and unemployment buffeting the economy, experts expect things to worsen for the rest of 2022 unless the relevant authorities take concrete steps to address the prevailing challenges.
Economists following India’s economic growth expect growth for this quarter to decline sharply to an annual 6.2% after recording a double-digit 15.2% growth in the second quarter. They expect India’s economy to shrink to 4.5% between October to December if nothing is done about rising unemployment and inflation.
According to a Reuters poll, India’s median expectation for 2022 growth was pegged at 7.2%, but economists believe that the solid growth rate reported by the country is a sign that things may slow down in the coming months.
The current realities
According to Kunal Kundi, a leading economist at Societe Generale, “While India holds its spot as the fastest growing economy, domestic consumption hasn’t reached a point where it drives growth further. More so, unemployment has continued to skyrocket, and real wages are at an all-time low.”
Even though the government has continued to support growth through investment, analysts believe the move will be counterproductive as the government isn’t factoring in the impact of domestic consumption. According to experts, this is why the country’s growth has remained below the pre-pandemic trend.
Despite reporting a double-digit economic growth figure, there is an increased apprehension that the country’s economy isn’t growing fast enough to accommodate the millions of Indians joining the labor force every year.
Meanwhile, the Reserve Bank of India, which has remained largely passive amid the rising global tightening cycle, is now set to increase the key repo rate by an additional 60 basis points as it proceeds to manage rising inflation.