GDP figures released on Tuesday May 31 indicate the toll of recent global uncertainties, beyond the complications left behind by Covid, and the challenges ahead for India to retain its distinction as the world’s fastest growing nation in 2022 – 23 (exercise 23).

India recorded growth of 8.7% in FY22. According to revised estimates from the Reserve Bank of India (RBI), the country is expected to grow by 7.2% in FY22. FY23. Revised IMF and World Bank estimates are 8.2 and 8 percent respectively.

The challenges are not specific to India. The whole world suffers from the common ills of inflationary pressure, suppression of consumer demand, negative impact on growth prospects, etc.

In China, banks are flooded with cash because there are few borrowers. All major real estate players have accumulated huge unusable debts. Some of them have defaulted. Some are rescued by public banks. Home sales plummet.

Against this backdrop, India’s performance in FY22 is not only commendable, but also stands in stark contrast to the looming threat of recession in many major economies.

It would be quite wrong to view this performance from the perspective of the FY21 Covid contraction either. All major indicators such as credit drawdown, core sector industrial growth, and the Purchasing Managers Index (PMI) in services and manufacturing are in the expansion zone.

That said, the weak growth of 4.1% in January-March 2022 has raised concerns. The 3.9% growth in real gross value added (GVA) was of particular concern. India reported a 5.7% increase in GVA in the March 2021 quarter.

Clearly, India’s growth prospects are affected by the Ukraine crisis and the resulting volatility in the global commodity market, particularly the spike in energy prices. The crisis pushed up inflation, forcing the RBI to tighten the money supply by raising policy rates.

Inflationary pressure in India is not yet as severe as in the United States, Europe, Brazil, Russia, etc. However, there is concern whether the outlook for growth in the June quarter of 2022 and the rest of the fiscal year will be a victim of the twin attacks of inflation and higher interest rates.

At a time when global growth is slowing, domestic consumer sentiment will be key to India’s growth.

According to the Center for Monitoring the Indian Economy (CMIE), although consumer sentiment is still well below pre-Covid levels, it is steadily improving and has risen above the March 2021 level when India was hit by the Delta wave.

The problem lies in the slow recovery of feelings. “It’s good to see a steady improvement in consumer sentiment month after month, but it’s somewhat worrying that the rate of improvement has been rather low and declining,” CMIE reported in May.

That doesn’t necessarily mean consumer sentiment won’t improve at a faster pace under the prevailing scenario for the rest of the year. Covid has dramatically changed consumer behavior. Also, it created a huge pent-up demand.

An example of this is the unprecedented rush of domestic tourists to all Indian destinations this summer, ignoring the higher costs. The World Travel and Tourism Council (WTTC) expects the sector’s contribution to India’s economy to surpass pre-pandemic levels in FY23.

Other indicators are also up. According to RBI, credit drawdown increased by 11.3% (year-on-year) in April this year, from 4.7% a year ago.

Notably, credit growth is not limited to businesses. The microfinance sector, which serves the informal sector, recorded double-digit credit growth in FY22. Based on April and May trends, many large MFIs expect credit growth to reach record highs in FY23.

The pace of public spending has already increased. It is possible to increase it further. After nearly a decade, the private sector has prepared to invest in capacity expansion. They are unlikely to reverse their plans for a slight interest rate hike.

That doesn’t mean all is well. The stock market is teetering on continued sell-off by Foreign Institutional Investors (FIIs) to take advantage of rising US rates.

This means that equity financing has not remained so easy. The best public offers, such as that of the Life Insurance Corporation (LIC), ended up below the issue price. Startups are also feeling the heat.

However, it is debatable whether all the blame should go to the market correction. The Paytm stock post-listing crash revealed that easy funding options encouraged developers to raise funds at abnormal valuations.

To take a more realistic look, things on the ground are not as bad as the fourth quarter GDP numbers might suggest.

Given the sharp rise in headline inflation in April-May, first quarter growth figures could also remain weak. However, the recent initiatives of the Narendra Modi government to stop inflation could be crucial for growth in the coming quarters.

There is little India can do in the face of global turmoil. The European Union’s latest decision to limit most oil imports from Russia and the reopening of China have once again pushed up oil prices.

It remains to be seen how a beleaguered Europe can handle the price shock but, rest assured, the global economy will face plenty of political uncertainties this year on top of inflationary pressure.

The main task of the government is therefore to keep inflation under control and to guarantee domestic demand. Recent reductions in duties on petroleum products, restrictions on wheat and sugar export markets and export duties on steel indicate that the government is serious about this.

Surely these are not the only option. From increasing the inflow of Russian crude at a reduced price to the proposed import of coal through Coal India Limited (CIL) to help with price pooling, the government is working on several fronts.

Stopping the Union government’s budget deficit at 6.7% (below revised budget estimates of 6.9%) and reducing the gross budget deficit of 26 of the 28 states by 31% during the 22 are extremely positive developments.

It is a dynamic situation. Past experiences and theories will not work. A cautious approach with centralized decision-making will be extremely crucial.

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