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In 2022, the Indian economy faced a lot of headwinds which had originated from internal and external sources. The year started with the threat of the Omicron variant. But it subsided within a few weeks. Russia’s invasion of Ukraine also affected the Indian economy. Later, continuing high inflation around the world affected millions and consequently, the RBI tightened its monetary policy to counter economic slowdown and rising inflation in India. At the end of 2022, fear of spreading of a new Covid 19 variant has surfaced.  

Important economic elements that affected the India economy in 2022

Overall production performance

First, the growth rate of GDP of the first half of the current FY had been 9.7% compared to 13.7% on a year-on-year basis. The gross value added (the core production of the economy) stood at 9% as compared to 12.8% of that in the same period of the last FY 22. It should be noted that higher growth in the first half of FY22 had been due to the impact of Covid 19 in FY 21. At the same time, India grew by 13.5% in the first quarter of FY23, which was due to increase in private consumption and investment and government’s higher capital expenditure.

But in the Q2 of FY23, GDP growth slipped to 6.3%. Many sectors like mining, manufacturing and exports had performed badly. At the same time, prices of inputs were high and overall inflation was also high. But the government was comparatively happy with the performance of the Indian economy as India was successful as one of the fastest growing economies of the world at that time.

Inflation

Price inflation or the rate of growth of rising price level, measured by consumer price inflation (CPI) or retail inflation (WPI) was above 6% of the RBI’s tolerable level for 10 consecutive months. It went below 6% to 5.88% only in last November. It should be noted that CPI inflation reached an eight year high of 7.79% in April. Moreover, rural inflation was as high as 8.4%. Urban inflation was comparatively less at 7.1%.  The food inflation rose to 8.4% - a seventeen months high. Many analysts observed that continued global surge in food and fuel prices impacted transport costs that led to prolonged high inflation.

RBI intervention

RBI has mainly one tool to check inflation through changing its policy rates. It convened a special meeting of the Monetary Policy Committee (MPC) in November and the committee wrote a letter explaining the reasoning of its failure in controlling inflation for more than two quarters. But ultimately, inflation came down to 5.88% in November as a result of decrease in food prices. At the same time, the Index of Industrial Production (IIP) also fell to 4%.

As a policy decision, the MPC increased the repo rate by 40 basis points to 4.40% - looking at the global situation of rising inflation of food and fuel as a result of stern geopolitical factors. The MPC raised repo rates consequently three times by 50 basis points in each turn to 5.9% in September and 35 basis points in December. At present, the repo rate stands at 6.25%. 

Robust tax collection, higher PMI

PMI indicates the overall health of the economy. PMI increased to 56.4 in July and 56.2 in August. Higher PMI indicated higher exports, capacity utilization, employment generation and higher inventories.

Amount of tax collection has been an indicator of the health of the Indian economy. In the current FY 23, the central government has collected `16.2 lakh crore as a cumulative gross tax revenue for seven months from April to October. This is 18% higher than `13.6 lakh crore collected in the same period of FY 2022. Another report said that direct tax collection came at 10.54 lakh crore as on November 10, 2022. This is 30.69% higher than that of the same period of FY 22. The last Annual Budget targeted `27.50 lakh crore as total tax collection. But the estimated total (direct and indirect) tax collection will surpass it and will touch `31.5 lakh crore in this FY23.

Employment scenario

High unemployment has been a long-term problem. But in December 2021, the Centre for Monitoring Indian Economy (CMIE) estimated 53 million were unemployed and it stood at 7.91% in December 2021. But unemployment decreased in the beginning of 2022. But the figure went up again and was estimated at 8% as of November 2022. But the job scope increased in rural areas in the agricultural sector but scope of jobs reduced in the urban sector. Unemployment increased in August due to erratic rainfall in various places of India. But in September, unemployment reduced to 6.43%.

Exchange rate

This year, the Indian rupee was at an all-time low and hit `82 against the US dollar. RBI sold dollars by a huge amount and helped not to fall the exchange value of rupee. Exchange value of most of the currencies of the world, except the Russian ruble, fell this year. Interest hike of Fed and outgo of dollar from India also increased the value of dollar.