In spite of local lockdowns and the impact of Delta and Omicron variants of the coronavirus, the Indian economy has managed to grow by 8.7 per cent in the financial year 2021-22. The growth metric, though muted when one sees it in the background of the lower base in the financial year 2020-2021, is quite impressive when viewed from the perspective of prevailing circumstances in the last year.
Investment has been the main driver of India's GDP growth during the last financial year. In contrast, consumption — both private and government — trailed investment as the government’s focus has been on creating future assets while boosting economic growth. Manufacturing, which was severely disrupted in fiscal 2020-21, too, had grown faster than services companies because of the lower base. While most manufacturing companies were shut down during the initial months of the Covid-19 pandemic in fiscal 2020-21, the service companies functioned seamlessly because of the work-from-home model. The speedier recovery of industrial activities and demand coupled in fiscal 2021-22 leading to faster growth in industrial activity.
Exports, however, have been a drag on the economy. Faster growth in imports compared to exports trimmed India’s GDP growth by an additional two per cent. A slowdown in government consumption to boost capital expenditure also depressed growth.
Given the improved pandemic situation, India is likely to maintain more or less the same growth trajectory. However, inflation, monetary tightening, fiscal prudence, higher interest rates and the global economic situation could impact the growth numbers marginally. Even so, India would continue to remain the fastest-growing major economy in the world as its only rival among the major economies — China — recovers from self-inflicted economic pain.
