In 2022, while the global economy was struggling amidst headwinds from slowing growth, higher inflation, and higher interest rates, India’s economy was resilient, and its growth was on a strong footing. Unlike other developed economies, India’s revival from Covid was not entirely dependent on fiscal and monetary expansion. The recovery was led by structural interventions like ‘Aatmanirbhar Bharat’ and National Infrastructure Pipeline. Indian exports grew to ~$ 440 billion in 2022 driven by effective Free Trade Agreements (FTAs) and global value chain integration. Major high-frequency indicators like GST collection, power demand, railway tonnage, domestic air passenger traffic, and passenger vehicle sales exhibited resilient strength. Indian banks credit rose 14.9 percent YoY and remained a major supporter of the sustained economic recovery.
The developed world entered another round of slowdown after Covid and 2022 experienced a sovereign debt built-up like the 1940s, inflation like the 1970s, and interest rate hike like the 1980s. The geopolitical risk index by Blackrock was at a 5yr high owing to tensions arising from the Russia-Ukraine war, which led to a major energy crunch in Europe. Countries like Sri Lanka, Russia, Lebanon, and Zambia defaulted on national debt, mimicking conditions from the global financial crisis of 2007-08. The Russia-Ukraine war and post-covid pent-up demand led to a sharp surge in prices of all major commodities including coal, crude oil, natural gas, and metals. The unexpected rise in inflation across geographies forced all major central banks to raise interest rate. 2022 witnessed global investors experiencing negative returns in both equity and debt markets along with a highly volatile currency and commodity market.
Although global macroeconomic conditions were difficult, India was able to steadily navigate the crisis through swift policy action by the Reserve Bank of India (RBI) and focused intervention by the government. When inflation breached the RBI’s comfort level of 6 percent, repo rates were raised from 4 percent to 6.25 percent to keep the rising inflation in check. On the other hand, the government through its barbell strategy of combined safety nets (PM Garib Kalyan Yojana of providing food grains to more than 80 crore Indians) and agile policy response through various targeted schemes such as the MUDRA, PLI, and Start-up India helped in encouraging private capex. Improvement in tax compliances resulted in a monthly record GST collection of 1.4 lakh crore+ in December 2022, indicating a sustained momentum for 10 months in a row. The scope of ECLGS (Emergency Credit Line Guarantee Scheme) was extended by an additional year and provided required support to MSME entrepreneurs across the country, with working capital and loans. According to SBI estimates, ~12 percent (INR 2.2 lakh crore) of the outstanding MSME credit has been saved from slipping into bad loans since the pandemic, thus saving 16.5 million jobs.
Rising inflation, monetary tightening, growth concerns, rollback of stimulus, and geopolitical events resulted in a negative return in all major asset classes including gold. Indian Equities outperformed almost all major global indices. India’s benchmark stock index Nifty made a modest gain of around +4.3 percent in 2022, setting a new record by delivering positive returns for seven years (CY16–22) in a row. Indian equity markets were supported by strong inflows from NPS, Insurance, and Mutual Funds with record SIP inflows crossing (INR 13,000 crore+/month). In CY 2022, Nifty outperformed the MSCI Emerging Markets index by ~27 percent and the MSCI World Index by ~ 24 percent. The performance of Indian equities was supported by improved corporate profitability, retail participation, and a strong GDP growth outlook.
The Balance Sheets of all four pillars (corporate, household, government, and banks) of the economy were healthy. Corporates and households were continuously de-leveraging while the government had started focusing on fiscal consolidation. Gross NPA of Indian Banks continued to decline and stood at a seven-year low of 5 percent in September 2022. Increased capex was articulated well in the Budget 2022-23, with a focus on infrastructure and economic recovery. Credit growth, PLI schemes, corporate tax cuts, and focus on a China + 1 strategy led to an inpour of private investments. India continued to perform well on the 5Ds that holds great importance in the modern world –Demographics (2/3rd of Indians are of working age), Democracy (pragmatic government policies), Decarbonisation (4th largest installed renewable capacity globally by end of 2022), Digitisation (official 5G rollout in India) and Debt (Debt/GDP for India remains one of the lowest among major global economies).
India remains the country that made significant economic progress in a year of global turmoil, surpassing the United Kingdom to be the 5th largest economy in 2022. This achievement can be attributed to a combination of favourable demographics, reform-driven government, a resurgence of manufacturing, and a culture of entrepreneurship. These factors will drive India's growth trajectory during the 'Amrit Kaal'- a 25-year period wherein India will go from India@75 to India@100.