Omicron’s fear has gripped the globe and, to some extent, India. The pandemic is becoming endemic. Its first year impacted globalization, country after country, continuing closures. Businesses and organizations have battled the collapse in demand by cutting costs in every way possible. The second year – 2021 – offered fractured supply chains across the globe exactly when demand started to rise. However, a welcome development has been that the pandemic has increased the appreciation of insurance.
India’s economic activity is slightly above pre-pandemic levels, except in a few sectors such as travel and hospitality. The Indian economy, being vast, diverse, heterogeneous and fragmented, must be seen as an amalgamation of many Indies. A number of transformative changes had taken place at home and abroad even before the pandemic. These have widened over the long period of the pandemic. The importance of health care has come to everyone’s attention – a welcome major development. Other changes relate to the fact that India has carried out more than 30 years of far-reaching economic reforms. India has also rapidly integrated into the global economy, which is likely to be instantly affected by the vicissitudes of the global economy.
The new standard is the VUCA ecosystem (volatility, uncertainty, complexity and ambiguity). which is linked to a variety of parameters such as technological innovations, climate change and pandemic issues. New ways of living and working to increase productivity are emerging. Policy formulations and legal changes are underway to keep pace with the rapidly changing VUCA environment. Digitization initiatives accelerate the various processes of change. Recent MPC minutes show that uncertainties will complicate economic policy in the future. Global power equations are also changing, with countries integrating or disintegrating with each other. Frictions between the United States and China and India and China. among other things, are making mind-boggling changes. Sometimes globalization is threatened. Change has become a new constant. Government officials have been urged not to succumb to risk averse behavior, as they realize that unless departments transform their culture and make timely decisions. even costly reforms will not take off. The added value is underlined. The layers of officials through which the files passed are being pruned. The government has realized the importance of the role of the private sector. The focus is on reducing the trust deficit, which is clear from recent policies such as monetization of government assets, divestment and privatization initiatives (implementation of the Air India sale), initiatives large-scale greenhouses (mega push into the renewable energy space, where investments are likely to cross $ 15 billion in N 199) and the Model Tenancy Act which is catalyzing the growth of the residential rental market in India, among others.
As for monetary policy, we are at an inflection point where easy monetary policy is supposed to give way to expensive monetary policy. Although the RBI is concerned with both growth and inflation, growth is currently the priority. The perception is that the rate of inflation is not likely to get out of hand. Most of the time, he will stay at the top level of the group. that is, 6 percent or 6.5 percent. As it seems there are so many global uncertainties and risks overseas, the RBI has taken a wait-and-see approach. She kept her own tools ready to deal with emerging risks. Financial markets are dichotomous. While fintechs have gained ground, stock markets have boomed until recently, but are not representative of the entire real economy unlike the United States.
Businesses are responsive to government policies. They started to restructure, also taking green initiatives. Businesses are also spoiled for choice. Banks, NBFCs, markets, and even private equity are all ready to lend. As the economy grows, such avenues will multiply. The year 2021 saw greater collaboration between the pharmaceutical industry, government and academia. It was a pivotal year for the Indian pharmaceutical sector. The outlook could reverse for Indian specialty chemicals. Data companies are increasing their capacities in India. In 2022, the decision-making skills of business leaders will be put to the test like never before. Indian companies would face periodic challenges such as slowing demand and supply side disruptions. India Inc, however, did a good job of tackling the double whammy. Although the government has done a lot for MSMEs, they have gone through difficult times for lack of power. unlike large companies.
The VUCA environment made cryptocurrencies popular. However. its wild fluctuations keep investors cautious. Cryptos hit a market cap of V trillion in 2021. Regulations are under consideration, but little progress has been made. The RBI releases its own digital currency. Blockchain technology, which is at the origin of cryptos, will develop despite cryptocurrencies passed under the radar. The RBI has serious concerns about the impact of cryptos on economic and financial stability.
The nearly two-year winning streak for Indian stocks has started to falter with the departure of foreign investors. The equity market is likely to experience a downgrade in the short term. Valuation multiples may not return to pre-pandemic levels due to improving macroeconomic fundamentals and healthy corporate balance sheets.
The positive points facing the economy are many: such as the implementation of proactive and pro-growth policies, such as the launch for the first time of the E-Sharam portal for the registration of informal workers; the Rs 76,000 crore package to support capital and resource intensive projects for semiconductors and display fats accompanied by a design incentive program; likelihood of instituting a unique identification number for businesses and individuals in place of the existing system requiring multiple identification numbers (Aadhaar, PAN and TAN) to make services available quickly; the start-up ecosystem, as well as the rise of unicorns (possibly the next engine of growth) and a series of well-structured FrAs to be announced soon – the UAE trade deal about to be finalized, which should stimulate trade with countries in the Gulf and Africa. Positive factors for the stock markets are a resumption of the recovery, the success of the China + 1 strategy of global investors and the continued reform agenda pursued by the Center and some states. Concerns include rising inflationary pressures, particularly input costs and WPI to 14-23 percent – the highest in 12 years – and retail sales inflation to 4.91 percent, including inflation in the fuel and lighting was 13.4 percent while white goods saw the third tranche of price increases mainly due to rising commodity prices. However, achieving deeper financial inclusion by the RBI (already halfway to full financial inclusion) will give the RBI more room to focus on reducing inflation volatility. Income inequality is another cause for concern The rich have splurged on imported durable consumer goods rather than domestically produced ones. This weakened the trickle-down effect. While large businesses have thrived during the pandemic, small informal businesses have struggled. Growing inequalities have been further exacerbated with the sharp increase in world commodity prices. The unemployment rate stands at 7.48 percent, of which the urban unemployment rate is 9.09 percent.
However, the main risk factor will be the political stance of the US Federal Reserve. This indicated a hawkish stance. Its key rates are expected to increase three times in 2022. The FED has also announced its intention to reduce its bond purchases. If the Fed prepares these decisions, the reduction in easy liquidity would hurt India even more. The bright spot is our foreign exchange reserves at $ 635, which is comfortable in terms of over 15 months of imports. The real test will be how rapid and optimal growth can be made sustainable when the pandemic environment continues to remain unclear. Much depends on how effectively policy measures are executed, leading to a revival of the animal spirit of the private sector. There are several short-term challenges, but India’s long-term growth remains bullish.
(To receive our E-paper on WhatsApp daily, please Click here. We allow sharing of the article’s PDF on WhatsApp and other social media platforms.)
Posted on: Tuesday December 28th, 2021 09:24 IST