In the present global scenario, boosting the rupee is a priority task

The feel-good factor may be impacted as RBI estimates the growth to lower, inflation to remain high, and crude prices to be around $100 a barrel. 

RBI Monetary Policy Committee’s (MPC) revised assumption of the crude oil price for making inflation and growth forecasts is sharply higher than the previous one. The growth estimates to lower to 7.2 per cent from 7.8 per cent even as it keeps repo rate unchanged at 4 percent and reverse repo at 3.35 per Bcent, meaning interest rates will remain low.

Retail Inflation averaging 6.3 per cent in the first quarter (April-June 2022), 5 percent in the second quarter, 5.4 per cent in the third quarter, and 5.1 per cent in the fourth quarter (January-March 2023) will be a concern. Wholesale rate remain at 13 per cent.

Inflation projections have been primarily revised upwards due to war-induced factors, according to RBI Governor Shaktikanta Das. It may entail difficult times as government finances may be impacted in meeting the inflationary pressures.

The Centre for Monitoring Indian Economy (CMIE) finds the rate of recovery slowing down after the second pandemic wave can reduce consumer sentiments and by March 2023 it could be 15 per cent lower.

On the other hand, with 83 unicorns valued at $277 billion would be able to create 11 lakh jobs, Nasscom-Zinnov says. The net non-farm employment growth has to sustainably rise till 2030 at 1.5 per cent a year so that there are at least 9 crore jobs. This may get delayed as lower consumer sentiments to hit manufacturing and other activities.

The challenges are many. India ‘s forex reserves came down by $14 billion though they are still comfortable at $619 billion.

Proposals for foreign investment in infrastructure are fraught with risk. There are suggestions from former RBI governor Bimal Jalan that infra development should be done in rupees.  This would hedge the rupee and the economy. Higher FDI would also have higher outgo in repatriation. Jalan suggests tax cuts and says rising petrol prices, supposedly highest in the world, are concerns.

No action is off the table when the need is to safeguard the Indian economy, Das says. Some more belt-tightening is possible though the Centre may like to adhere to the possible extent to its budgetary programmes.

CMIE says that the slower recovery does not bode well. Various international impediments add to risks. Such consumer sentiments can impact spending and therefore, growth in private final consumption expenditure that accounts for about 55 percent of the country’s GDP.

The consumer sentiment expanded by 5 per cent in January but in March it declined to 3.7 per cent. It would take three years to recover to the pre-Covid level provided there is no other jerk to the economy. The RBI apparently took a note of it.

The Ukraine war related sanctions imposed by the US affects India’s exports to an extent as well.

The government has taken to various international tie-ups to tide over the crisis. The latest free trade pact with Australia is a move to counter China. It opens up avenues for coal and other raw material imports as well as export of garments, pharmaceuticals, steel and other products. It also allows Australian liquor and other companies to set up their units in India.

Another decision to invite Gulf country companies to invest in Kashmir is being seen as a major gain. These companies in their meeting with the governor say they have spotted 4226 sites for hotels, tourism centres and factories under the FTA with UAE.

Meanwhile, phasing out imports of 101 more defence items will give a push to self-reliance and save forex. The plan is to make the country a global hub for defence manufacturing. It could be a big forex earner as well as create an aura for the country.

It is hoped that these would gradually tide over the balance of trade issue. At present, despite $400 billion of exports there remains trade deficit of $ 192 billion as imports in value terms have become expensive. It also adds to forex loss despite higher earnings. It is not easy to tide this over as rupee continues to slide beyond Rs 75. In the present global scenario boosting the rupee is a task.

Amid these problems FDI has increased to over $560 million. It shows the confidence of the investor in the country’s policies. The country is through a difficult phase but it has to get over for a bright future.

(The writer is a senior journalist. The views expressed are personal.)