Economic headwinds are posing a potential challenge to India’s growth bounce back, particularly at a time when the Omicron variant of the coronavirus is sweeping the country with dizzying speed. While the government’s advance estimates of the GDP project that the economy has grown beyond pre-pandemic levels finally after two years, with the GDP expected to grow by 9.2 per cent, it may be too early to celebrate. The advance estimates were made before the Omicron-led third wave hit. Also, the recovery has been uneven, sustained mainly by government spending and the farm sector, while private consumption expenditure is yet to return to pre-pandemic levels. The index for industrial production (IIP) has fallen for the third straight month, down from about 4 per cent in October to 1.4 per cent in November. Inflation, too, is on the rise. Consumer or retail inflation, as measured by the Consumer Price Index (CPI), rose to 5.6 per cent in December 2021, the highest in six months. The Wholesale Price Index, despite a bumper monsoon, continues to stay quite high thanks to rising energy and commodity prices, hitting 14.2 per cent in November.
Given the challenges, both the RBI and the finance minister have their tasks cut out. While the RBI will have to rethink its accommodative stance and perhaps consider a rate increase to stem inflation, the upcoming Union Budget will have to include measures to stimulate private consumption and revive investment sentiment in order to sustain the revival. Extending the credit support scheme for the MSME sector, as well as giving some tax breaks to the individual taxpayer, particularly the longsuffering middle class, could go a long way towards reviving consumer sentiment and sustaining the growth
