The Banking Executive Magazine - September Issue 2022

One country stands out from the gloomy overall tone of the Interna- tional Monetary Fund’s recent update of its World Economic Outlook. Against the backdrop of tepid 3.2% global growth in 2022, the IMF ex- pects India’s GDP to expand by 7.4%. This is the fastest growth of any large economy except Saudi Ara- bia, which is the incidental benefici- ary of upward pressure on global oil prices. India may be buying Russian crude at a discount, but, as the world’s third largest oil importer, it is still burdened by high oil prices. One might doubt that India had an exceptionally difficult pandemic, so it now has exceptional scope for bouncing back. But other countries hit hard by COVID-19, such as Mex- ico, are not doing nearly as well. One might also note that, with India’s still-rapid rate of population growth, per capita incomes are rising more slowly than the aggregate GDP figures. But a population growth rate of 1% doesn’t fundamentally change the story. India’s annual GDP growth in excess of 7% is in fact the continuation of an ongoing acceleration, from roughly 5.7% in the 1990s, to 6.2% from the turn of the century to the 2008 global financial crisis, and then to 6.9% from the crisis to the eve of the pandemic. The country has ben- efited from a buoyant tech sector, surprisingly robust agricultural pro- ductivity gains, and decent manufac- turing growth. With the worst of the pandemic now behind it, the econ- omy is firing on all cylinders. The question is whether this can last. Unfortunately, there are good rea- sons to believe that, given current policies, the answer is no. To maintain its growth momentum, India needs to export more. The country has never been an export powerhouse, to put it mildly. Exports of services help, but the outsourcing of back-office and customer-facing services is now poised to slow, as firms “friend-shore” more of their op- erations. The current government’s commitment to investing in logistics seems promising, but only time will tell how investment projects pan out. Rupee depreciation can make mer- chandise exports more competitive and limit consumption of imports. But the Reserve Bank of India, treat- ing exchange rate stability as an im- portant totem, has been reluctant to let the rupee fall. In the future, Indian exporters will face a less favorable external envi- The Indian Economic Prospects SWIMMING AGAINST THE TIDE; The Indian Economic Prospects the BANKING EXECUTIVE 22 ISSUE 165 SEPTEMBER 2022