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The pandemic-hit the global economy has gone through turmoil for more than a year and the Indian economy is not an exception. However, the country's economy was facing a major downturn for the past five-six years - as the GDP growth dropped consistently.

Recently, the Union government has published GDP data for the Q2 of FY 22, stating India's GDP growth for the quarter was 8.4%. The Ministry of Statistics and Programme Implementation said that the GDP in Q2 FY22 is estimated at `35.73 lakh crore, as against `32.97 lakh crore in Q2 of FY21. According to the RBI's growth outlook, the real GDP growth is projected at 6.6% in Q3 FY22, 6% in Q4 FY22, 17.2% for Q1 FY23 and 7.8% for Q2 FY23.

The government has also reported a well-poised sectoral growth; the manufacturing sector increased by 5.5% in Q2, while construction grew by 7.5%. The agriculture sector continued to increase at 4.5% in Q2, while the mining and quarrying sector grew at 15.4%. In line with the current growth trajectory, the output of eight core sectors in the country has surged by 7.5% - according to the latest available data.

Low base impact?

An 8.4% GDP growth seems promising, but analysts are saying that this growth should not be compared on a year-on-year basis. Rather it should be assessed on a quarter-on-quarter basis. Last year, the growth of the global economy was miserable; India reported a GDP contraction of 7.4% in Q2 of FY21. Before that, India's GDP plunged by 24.4% in the April-June quarter of FY 21 - according to the National Statistical Office (NSO) data.

Global context

However, India's GDP growth in Q2 FY22 is quite encouraging in the global context. China, one of the biggest economies in the world, has reported a growth of 4.9% in the same quarter this fiscal. So, India's growth rate is far better than that. This GDP growth and manufacturing output improvement has made India the fastest growing economy among the biggest nations.

RBI's monetary policy

The central bank of India, RBI is taking strong steps to give financial boost and ensure liquidity infusion into the economy. The six-member Monetary Policy Committee (MPC) of the RBI has maintained a status quo on the key interest rates in its December bi-monthly policy. The central bank has kept the rates the same for the ninth consecutive time, as the Repo and reverse repo rates are currently standing at 4% and 3.35%, respectively. It is an ‘accommodative’ stance for the RBI.

RBI's key outlook is to recover the Indian economy even faster than 2021, while they are also worried about the new Omicron Covid variant and supply disruptions caused by it. This year, the delta variant already slowed down the growth of the manufacturing and tourism sectors, impacting the MSMEs hard. The central bank does not want to pressurise small businesses and common citizens by increasing the interest rates any time soon.

A low repo rate has kept the interest rate on home loan, housing loan, car loan etc. affordable, and has helped in ensuring liquidity infusion throughout the year. Hence, even with a high inflationary pressure, the rates are being restricted at historical low levels. According to Michael D Patra, Deputy Governor, RBI, “India’s monetary policy is, by design, financially inclusive and it will reap the benefits of this strategy in the future in terms of effectiveness and welfare maximisation.”

According to the RBI, one of the major challenges is that consumption spending is held back by households hesitant to incur discretionary expenditure. Additionally, private investments have remained timid.

Apart from the growth rate, high inflationary pressures are concerning economists and policy makers. RBI's CPI inflation is projected at 5.3% in FY22. The CPI inflation was reported to be at 5.1% in Q3 and 5.7% in Q4 FY22. RBI thinks it can ease to 5% for Q1 and Q2 of FY 23.

Further lookout

The Indian government has imposed few restrictions on airlines, tagging 'at risk' travel from countries affected with Omicron. India is recovering slowly from the second wave and is not ready to suffer from another wave. In addition to that, the government should also look out for the manufacturing output and employment growth. In addition to that, the government has recently intensified its domestic vaccination drive and eased its lockdown policies to roll out the economy faster. The agriculture sector has remained one of the biggest supporters of the country's economy in these trying times.