With the Covid-19 pandemic waning in India, the other aspects of the economy came to the fore. Especially the increasing inflation which appears to be one of the major factors dampening economic growth prospects. Most of the international financial institutions and global rating agencies have lowered India’s economic growth forecasts this month. The silver lining was that India’s innovative capacity and achievements get highlights in the Global Innovation Index 2022.  

Asian Development Bank

The Asian Development Bank recently released Asian Development Outlook (ADO) 2022 Update: Entrepreneurship in the Digital Age. As per the report, India’s economy grew 13.5% year on year in the first quarter of fiscal year 2022 (FY2022, ending 31 March 2023) reflecting strong growth in services. However, GDP growth revise down from ADO 2022’s forecasts to 7.0% for FY2022 and 7.2% for FY2023. As price pressures expect to impact domestic consumption adversely. And sluggish global demand and elevated oil prices will likely be a drag on net exports.

This Update expects inflation in India to be higher than ADO 2022’s forecast, averaging 6.7% in FY2022. And moderating to 5.8% in FY2023 as demand pressures from strengthening economic activity will tamp down by easing supply bottlenecks. The slowdown in global growth and high oil prices will hurt India’s export prospects in FY2022. Imports will grow faster on rising domestic demand, and remittances may fall as global income falters, despite a depreciating rupee. On balance, India’s current account deficit in both fiscal years is expected to widen beyond the earlier forecasts, rising to 3.8% of GDP in FY2022 and narrowing to 2.1% in FY2023.

Moody’s Reduces Economic Growth

Moody’s Investors Service slashed India’s economic growth projection for 2022 to 7.7%. They assume that rising interest rates, uneven monsoon and slowing global growth will dampen economic momentum on a sequential basis. In its update to Global Macro Outlook 2022-23, Moody’s said India’s central bank is likely to remain hawkish this year and maintain a reasonably tight policy stance in 2023 to prevent domestic inflationary pressures from building further.

“Our expectation that India’s real GDP growth will slow from 8.3% in 2021 to 7.7% in 2022 and to decelerate further to 5.2% in 2023. Assumes that rising interest rates, uneven distribution of monsoons and slowing global growth will dampen economic momentum on a sequential basis,” Moody’s said. It expects inflationary pressures to weaken in the second half (July-December) of the year and further in 2023. “A quicker let-up in global commodity prices would provide significant upside to growth. In addition, economic growth would be stronger than we are projecting in 2023. If the private-sector capex cycle were to gain steam,” it added.

Fitch Lowers Economic Growth

Global rating agency Fitch has lowered India’s economic growth forecast for fiscal 2022-23 (FY23). As measured by gross domestic product (GDP) to 7 percent from its June 2022 estimate of 7.8 per cent. It now expects the GDP to slow further to 6.7 percent in FY24 compared to earlier forecast of 7.4 percent. “The (Indian) economy recovered in 2Q22 with growth of 13.5 per cent year-on-year (y-o-y). But this was below our June expectation of an increase of 18.5 per cent y-o-y. Seasonally adjusted estimates show a 3.3 percent quarter-on-quarter (q-o-q) decline in 2Q22 though this seems to be at odds with high-frequency indicators.

We expect the economy to slow given the global economic backdrop, elevated inflation and tighter monetary policy,” Fitch said. The Reserve Bank of India (RBI), Fitch believes, will continue raising rates to 5.9 per cent before the year-end. The RBI, it said, remains focused on reducing inflation. But said that its decisions would continue to be “calibrated, measured and nimble.” And dependent on the unfolding dynamics of inflation and economic activity.

Global Innovation Index 2022

The 2022 edition of the GII tracks the most recent global innovation trends against the background of an ongoing COVID-19 pandemic, slowing productivity growth and other evolving challenges. This edition’s thematic focus on the future of innovation-driven growth provides a perspective on whether stagnation and low productivity growth are here to stay, or whether we are about to enter a new era, where new innovation spurts – the Digital Age and the Deep Science Innovation waves – bring about an economic uplift. The GII reveals the most innovative economies in the world, ranking the innovation performance of 132 countries.

The report mentioned that India continues to change the innovation landscape. India made it to the top 40 for the first time and was placed at the 40th position, up from its 46th position in 2021. It continues to lead the world in the ICT services exports indicator (1st) and hold top rankings in other indicators, including Venture capital recipients’ value (6th), Finance for startups and scaleups (8th), Graduates in science and engineering (11th), Labor productivity growth (12th) and Domestic industry diversification (14th). India, along with 3 other countries, continued as record holders by being Innovation Achievers for a 12th consecutive year. India’s innovation performance is above average for the upper middle-income group in almost every innovation pillar, with the exception of Infrastructure, where it scores below average.

Posted by Sourish Mohan Mitra

Sourish Mohan Mitra, India-qualified lawyer from Symbiosis Law School, Pune and currently working as an in-house counsel in Delhi, India; views expressed are personal; he can be reached at sourish24x7@gmail.com; Twitter: @sourish247

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