 The year 2022 posed severe challenges for the economy due to the pandemic and Russia's

invasion of Ukraine.

 Disruption to major trade routes and sanctions on Russia led to a surge in oil prices and
inflation, impacting India's economy.

 The government and RBI focused on bringing prices under control instead of boosting
economic growth.

 India continues to face headwinds from external factors such as geopolitical challenges and
slowdowns in the US and China.

 India is expected to be the fastest-growing economy among major economies in the

financial year 2022-23.

 Existing global challenges may lead to lower growth, but strong domestic demand will drive
robust growth.

 The World Bank reported that India showed higher resilience to global shocks and better-
than-expected quarterly growth numbers.

 The policy measures undertaken in 2022 will have a bearing on the Union Budget for
financial year 2023-24.

 The government's focus on growth will continue, but external factors will impact the
economy.

 10 economic trends to look forward to in 2023 include India's fastest-growing economy

status and navigating through global uncertainties.

Chart 1

India's economy grew at 6.3% in Q2 of FY22-23, lower than the RBI's projected growth of 16%.

The contraction in manufacturing and mining sectors contributed to the lower growth rate.

The SBI estimated that India will be the third-largest economy by 2029, projecting growth of 6.7%-
7.7% in FY23.

The RBI lowered its GDP estimate to 6.8% from 7% earlier, citing geopolitical tensions.

Morgan Stanley's report in August projected India to be the fastest-growing Asian economy in FY23,
with GDP expected to grow at an average of 7%.
Chart 3&4

Consumers were hit by price increases during the festive season amid the Covid-19 pandemic-
induced economic shocks.

The government introduced measures, such as export restrictions on rice, to calm domestic prices.

Consumer prices remained above the RBI's upper tolerance limit for inflation.

The RBI has a target to keep inflation within a 2-4% range with a margin of 2% on each side.

India's annual inflation stayed above the 6% tolerance band for 10-straight months in 2022.

In November, CPI figure came within RBI's target range due to slower rise in food prices.

Chart 5

India's annual inflation has stayed above the RBI's 2-4% tolerance band for 10 straight months.

In November, CPI figures came within the RBI's target range due to slower food price increases.

The Russia-Ukraine war has led to inflation pressures in India.

The IMF has cautioned India to be careful with interest rate hikes and to do additional tightening in a
calibrated manner.

The RBI has raised its key policy rate by 225 basis points since May 2022, leading to higher EMIs for
loan takers.

Rate hikes are expected to continue, not just in India but also for major central banks worldwide

Chart 6

RBI Governor Shaktikanta Das warns against a premature pause in rate hike, as the battle against
inflation is not over yet.

US Fed Chair Jerome Powell presents similar views, saying that the Fed will deliver more rate hikes
next year to bring down inflation.

Chart 7

The Fed is raising borrowing costs to reduce demand across the economy, relieving intense
competition for workers, goods, and homes.

The impact of these policies on the economy remains to be seen in the coming year, particularly in
light of the risk of a possible recession.

Chart 8

Other major central banks besides India and the US have also ramped up interest rates at the fastest
pace and biggest scale in at least two decades in 2022.

The US Federal Reserve, European Central Bank, Bank of England, Reserve Bank of Australia,
Norway's Norges Bank, Bank of Canada, and Swiss National Bank all raised their benchmarks by a
cumulative 300 basis points.The monthly peak of rate hikes was 550 basis points in September,
although not all central banks meet on a monthly basis.
Chart 9

The US economy is speculated to be inching towards a recession in 2023.

Inflation surging to 40-year highs and multiple rate hikes by the Fed have contributed to this
situation.

The Treasury yield curve has been inverted since early 2022, a signal that has preceded past
downturns.

Fed chair Jerome Powell did not explicitly confirm a recession, but expects only modest growth and a
modest increase in unemployment.

Jobs have never declined during a recession in the US.

Economies need to start bracing themselves for potential spillover effects if a recession does occur.

Chart 10

China is facing headwinds from Covid curbs, recession risks, and a property downturn

China is battling the world's biggest surge in infections and hospital/crematoriums are overwhelmed

If new Covid variant spreads, it may force countries to impose restrictions during a global economic
downturn

Profits at China's industrial firms contracted due to Covid-related disruptions and supply chain issues

Analysts predict a U-turn in China's zero-Covid policy may improve prospects in 2023

China's property market continues to decline, and property investments fell 16% in October

Real estate accounts for a fifth of China's GDP and the crisis could spill over into the financial sector

Exports struggled due to softer overseas markets, causing China to shed workers and shift to lower-
value goods

China is on track to miss its annual growth target of around 5.5%.

Chart 11

South Asian countries are facing a tough year with elevated inflation, political and economic turmoil,
balance of payment pressures, and scars from the COVID pandemic.

World Bank estimates the region to average 5.8% growth this year, down by 1 percentage point
from its earlier forecast in June.

Sri Lanka defaulted on its overseas debt in May and is still awaiting a $2.9 billion rescue by the IMF.
The poverty rate has doubled in one year, output has cratered, and inflation soared.

Pakistan witnessed political instability and economic slowdown, leading to tapping IMF for financial
aid.

Bangladesh was also in talks with IMF to prevent further decline in its forex reserves.

The World Bank report highlights that South Asian countries have divergent growth paths, with more
service-led economies expected to maintain recovery while Afghanistan, Sri Lanka, and Pakistan face
precarious situations and increased poverty.
India's stock markets have been the best performer among Asian markets, with strong corporate
earnings, a post-pandemic retail boom, and a projected 6% growth rate in the next fiscal year driving
optimism.

Despite a lackluster spell for most of the year, Sensex closed at an all-time high of 63,284 on
December 1 and is the world's best-performing large market index.

Foreign investors retreated from Indian equity markets in 2022, but inflows from FPIs are expected
to revive in the coming year.

The cryptocurrency market has experienced a significant decline in 2022, with Bitcoin losing 60% of
its value and the wider crypto market shrinking by $1.4 trillion.

RBI governor Shaktikanta Das has repeatedly cautioned investors against buying cryptocurrencies,
stating that they could be the cause of the next financial crisis.

To combat the popularity of cryptos, the RBI has introduced pilots of its own digital currency, the
digital rupee/ or central bank digital currency.

The debate over old pension scheme (OPS) and new pension scheme (NPS) has been trending, with
the RBI stating that OPS is not sustainable for state finances.

The issue of freebies has also been in the public eye, particularly with 9 states heading for elections
next year.

OPS vs NPS debate gaining attention due to reversal of positions by Rajasthan and Chhattisgarh

RBI report warns OPS is not sustainable for state finances and is a fiscal burden

Freebies debate in public eye with 9 states heading for elections next year

Supreme Court questions impact of freebie culture on economy, proposes apex body for suggestions

PM Modi and RBI caution against rising subsidy burdens and stretched state finances due to Covid
pandemic.

Union Budget 2023-24 will focus on boosting economic growth and ensuring fiscal consolidation

Finance Minister Nirmala Sitharaman will present the last full year budget of the Modi 2.0
government

Government plans to use capital spending to sustain strong economic growth and prioritize health
and education sectors

Capital expenditure can guarantee good growth, according to Sitharaman's statement at a Reuters
conference.

conclusion

The international economic crisis had a significant impact on the Indian economy, but the
government took measures such as increasing public spending and encouraging domestic
consumption to mitigate the effects. To overcome it, India should focus on domestic production,
improve infrastructure, implement structural reforms, promote innovation and entrepreneurship,
and build a social safety net. India learned the importance of diversification and resilience for
sustainable economic growth.`