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Focus 2022: Recovery Continues

The year 2022 is going to be very crucial for the Indian economy and how the Omicron variant will pan out will determine the pace and nature of the recovery.

Photo Credit : PTI


Ever since the time the Coronavirus pandemic hit the world, the global business sectors have seen numerous highs and lows, with a few shut down and turning in red. In India, uncertainty over the economic outlook was highest this year, especially after the devastating second wave. However, after fighting several odds, the country's economy is on a steady path of recovery, as per economists. 

As Finance Minister Nirmala Sitharaman and other officials are preparing for the Union Budget 2022, there is some good news about the economy. After plunging to a long term low, the GDP development rate has ricocheted back. India's economy is expected to grow by 8.5 per cent in 2022, according to International Monetary Fund projections. 

Moving ahead now, 2022 will be the year of sharp recovery as imbalances created by the pandemic are expected to be resolved. The government’s infrastructure push, effective monetary policy, widening of the performance-linked incentive scheme, structural reforms, crypto and digital assets along boost in financial technology in rural India are one of the major components that are expected to fuel the economic recovery.

Here are the top 5 early trends that will accelerate economic growth in 2022:

1. Effective Monetary Policy: In December, the Monetary Policy Committee (MPC) of RBI kept the repo rate under the liquidity adjustment facility (LAF) unchanged at 4.0 per cent, the reverse repo rate at 3.35 (unchanged) per cent and the marginal standing facility (MSF) rate and the Bank Rate at 4.25 per cent.

We continue to expect the RBI to fine-tune the surplus liquidity to manage rates and consequently provide guidance on the operating target rate shifting closer to the Repo rate. We retain our base case of a reverse repo rate hike in February

If the Omicron variant remains a concern, according to our calculations, we expect a reverse repo hike of around 20 bps possible in the February policy and a more aggressive liquidity withdrawal. The early estimates suggest that all constituents of aggregate demand will further enter the expansion zone, with exports and imports markedly exceeding their pre-COVID-19 levels. 

2. Government initiatives/expenditure spending: In 2022-23, the Centre is going to spend big on booster shots of COVID-19 vaccines, health infrastructure in the smaller cities, welfare schemes for the poor, food subsidy, easier loan access for the smallest borrowers and capital expenditure. 

Capital expenditure (capex) and infrastructure development will be based on Rs 111 lakh crore National Infrastructure Pipeline (NIP) and the ‘PM Gati Shakti’ that can decrease logistics costs from 13 to 8 per cent in the next four-five years. Finance Minister Nirmala Sitharaman recently said that India is in no hurry to withdraw Coronavirus stimulus measures which will provide the support needed for economic growth.

Policies like an increase in the stimulus package, production-linked incentive scheme (PLI) and project management professional (PMP) will attract foreign investments along with initiates like PMJDY  combined is going to help the Indian economy to avoid a severe downturn.

3. Cryptocurrency and Central Bank Digital Currency (CBDC): Crypto and focus on its regulation are one of the trends that will dominate in 2022. The upcoming stage is termed as 'Web 3.0' by the industry, where decentralised internet draws on blockchain technology and data owned by consumers can help Indian economic growth and boost its GDP.

Digital assets such as cryptocurrencies, Bitcoin, central bank digital currency, non-fungible tokens (NFTs) and others can add help India to achieve the USD 1 trillion economy by 2030, said US-India Strategic Partnership Forum (USISPF) and US-based crypto exchange CrossTower. 

The different sectors utilising blockchain technology like healthcare, supply chain, loyalty and rewards, payment and remittances, financial services and art, can add up to $1.42 billion, $68.6 billion, $2.8 billion, $21.7 billion, $13.3 billion and $51.5 billion by 2032. Meanwhile, the Chief General Manager of RBI’s Department Of Payment and Settlement, P Vasudevan said that the Central Bank is likely to pilot its CBDC in FY22. 

Consumer spending: In India, consumer spending went up to Rs 19483.46 Billion in Q3 2021. Hence, it is expected to be Rs 21798.00 Billion by the end of this quarter, according to Trading Economics global macro models and analysts expectations. However, in 2022, consumer Spending is estimated to be around Rs 23324.00 Billion, according to our econometric models.

4. Fintech Dominance In rural India: Financial technology adoption in rural India is going to increase in 2022, which will set the stage for the rural economy to grow. Recently, Sitharaman asked the Indian Banks Association to boost the presence of banking services in rural India. Also, RBI has also initiated the Payment Investment Development Fund (PIDF) with a starting corpus of Rs 345 crores. This scheme aims to add 30 lakh digital payments touchpoints in tier-3 to tier-6 areas along with North-eastern states.

Meanwhile, the Ministry of Electronics and Information Technology (MeitY) is going to establish the Common Service Centers (CSCs) as digital financial hubs. The Centre has invested over Rs 65 crore to promote digital financial services such as IMPS, UPI, Bank PoS machines, etc. This will lead to awareness among rural people about governmental policies and digital finance options available for them. 

Private companies are not lagging behind.  E-commerce giant Amazon has invested Rs 225 crore in its Indian digital payments arm and is estimated to corner 63 per cent of the market share by 2025. Several fintech companies provide innovative technologies like voice-based payments solutions (no internet required) and a smartphone to merge fintech with agriculture, education and healthcare. These developments which are all set to take place in 2022 will set a stage for India to become a digital-first economy. 

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