New Delhi, March 15 (Mayank Nigam) The Indian economy is well prepared with adequate forex reserves to absorb any upcoming external shock in terms of capital outflow induced by uncertain geopolitical environment, said Monthly Economic Review of Finance Ministry released on Tuesday. The review report said that foreign exchange reserves continue to be at a record high and are large enough to finance more than 12 months of imports. It further said that foreign investors have largely stayed invested in the economy as the exchange rate depreciates on a flatter trajectory shaped by exceptional growth of exports. It noted that external sector exhibits sign of resilience with robust growth in merchandise exports increasing to $ 374.8 billion during April 2021-February 2022, covering 93.7 per cent of the target set for 2021-22.
The review report said that second advance estimates of GDP has reaffirmed full recovery of India’s economy with real GDP of financial year 2021-22 estimated to go past the output of the most recent pre-pandemic year of 2019-20. “Further, real GDP estimates for Q3 of 2021-22 indicate strong growth momentum, aided by rapid vaccination coverage along with accommodative monetary and fiscal policy support. High frequency indicators for the current quarter indicate sign of recovery in the economic activity as Omicron induced restrictions are eased with the decline in new cases,” said the monthly review report. It stated that increase in capital expenditure will further boost the growth and employment through multiplier effect.
Highlighting the FY23 growth forecast upgrade by rating agencies, the report said that recent rise in crude oil price, if sustained well into new financial year, would pose downside risks to those estimates. Crude oil prices have witnessed a sharp uptick in February 2022 on account of demand-supply mismatch and geopolitical tensions between Russia and Ukraine. The price of India’s crude basket has increased by 43.8 per cent from April 2021 to February 2022. The average February price stands at $ 93.1 per barrel. Elevated price level of oil and gas prices are set to have cascading effect on other items where they are used as key input. This would mean inflation level further going up. “Going forward, elevated energy and commodity prices may act as an upside risk to the inflation outlook in the near- medium term. Given the inherently unsustainable nature of high prices, international commodity prices are expected to level off early with increase in supplies outside the crisis zone,” the Finance Ministry review report for the month of February said. Consumer Price Index – Combined (CPI-C) inflation or retail inflation for the month of February 2022 rose to 6.1 per cent from 6 per cent in January 2022.
Meanwhile, consumption component of aggregate demand continued to remain robust on the back of improved consumer sentiments amidst a recovering economy. The personal loan segment continued to exhibit strong growth in January 2022, with an increase of 11.6 per cent year-on-year. The increase was driven by growth in loans for consumer durables, loans against jewellery, advances to individuals against shares/bonds, and advances against fixed deposits. The report noted that domestic policies to boost capital expenditure are well tailored. “Capital expenditure increased by 22.0 per cent YoY during April 2021-January 2022 and stood at Rs 4.4 lakh crore in April-January 2021-22 compared to Rs 3.6 lakh crore in the corresponding period last year,” the report said.