Bright growth prospects driving high imports, financing them a top priority: Finance Ministry

India’s growth has been robust and inflation in control, even as the world’s major economies are afflicted by slowing growth and high inflation, the Finance Ministry said on Saturday, reckoning that the economy will grow 7.2% this year driven by a revival in consumption, employment and investments.    

Financing India’s imports, which have been over $60 billion for six straight months, will have to be accorded high priority, the Ministry noted, linking the ‘faster growth’ in imports is to the country’s ‘bright’ growth prospects. 

“The increase in price of imported commodities not only led to uptick in headline inflation but also widened the trade balance. However, with the easing of global supply-chain disruptions and decline in commodity prices, inflationary pressures are expected to soften and trade balance is anticipated to improve,” the Ministry said in its monthly economic review for August.     

The monthly goods trade deficit hit a record $30 billion in July as exports growth slowed, and remained uncomfortably high at about $28 billion in August. Indian consumers have faced 6%-plus inflation since January this year, with four of the last five months clocking 7% or more. 

The Finance Ministry attributed the ‘inflation acceleration in 2022 compared to 2021’ to rising prices of imported commodities, global supply side disruptions and revival of demand in advanced economies with the waning of the pandemic. 

“A relatively buoyant growth and a relatively stronger external sector is now set to converge with declining inflation to deliver for India a strengthened macroeconomic outlook for the balance period of the current year,” it said.   

“Downside risks to growth will persist insofar as India is integrated with the rest of the world. Nor is there room for complacency on the inflation front as lower crops-sowing for the Kharif season calls for deft management of stocks of agricultural commodities and market prices without unduly jeopardising farm exports,” the Ministry said 

With the economy growing 13.5% in the first quarter of this year, India’s real GDP is now ‘nearly’ 4% over pre-COVID levels ‘marking a a strong beginning to India’s growth revival in the post-pandemic phase’, the Ministry said. 

In the next three quarters, the real GDP ‘needs to grow by (only) 5.4% on average every quarter’ to achieve the 7.2% growth in 2022-23 as projected by the Reserve Bank of India, it underlined, citing a positive outlook on consumption, investment and employment.      

“The contact-intensive services sector is likely to drive growth in 2022-23 building on the release of pent-up demand and near universalization of vaccination. A sharply rebounding private consumption backed by soaring consumer sentiments and rising employment will sustain growth in the months ahead,”   

Policymakers, however, cannot remain satisfied and ‘sit back for long periods’, the Ministry cautioned, stressing that ‘eternal macroeconomic vigilance is the price for stability and sustained growth’ in these uncertain times. 

“In winter months, heightened international focus on energy security in advanced nations could elevate geopolitical tensions, testing India’s astute handling of its energy needs so far,” it pointed out as one of the key risks ahead. 

While advanced economies are rushing to cap inflation and deal with the liquidity overhang from their easy money policies during the pandemic, which the Finance Ministry termed an ‘unenviable task’, it asserted that India is in a better position to calibrate its liquidity levels without ‘abruptly stalling’ growth. 

“Watchful and prudent fiscal management and credible monetary policy will remain essential for India to fulfil its growth aspirations. Both these pillars of public policy will enable benchmark borrowing costs for the government and the private sector to decline, facilitating public and private sector capital formation,” the Ministry mooted. 

“Vigorous pursuit of asset monetisation at all levels of government will help lower debt stock and hence debt servicing costs. That would cause risk premium to drop and credit rating of India to improve. A virtuous circle would set in as the quality of public expenditure increases in its wake and the private sector enjoys a lower cost of capital,” it averred. 

“The current financial year thus has the potential to lay a strong foundation for sustained economic growth, improved resilience and enhanced competitiveness of ‘Make in India’ during the Amrit Kaal,” the review concluded.