The Reserve Bank of India’s (RBI) latest statistics show that India’s foreign currency reserves fell by $5.9 billion to $590.59 billion for the week ending June 17. The report revealed that the loss in foreign currency holdings worth $5.4 billion was the primary source of the drop in overall reserves. Since September 2021, the country’s foreign reserves have decreased by around $52 billion. For the sake of stabilizing the foreign exchange market and bolstering the local currency, central banks have been selling dollars. There was a drop of USD 258 million in gold reserves to USD 40.584 billion.
Moreover, the foreign currency reserves in the nation have fallen by more than $10 billion in the last two weeks as the central bank increased its involvement in the market. The Reserve Bank of India has been selling dollars to stabilize the currency rate and prevent the rupee from depreciating at an uncontrollable pace. In the preceding week, the reserves were drained by $4.6 billion. In this article, we’ll provide you with information on how the Indian economy develops in the current situation and what does the future hold.
Indian Economy In The Moment Of Financial Crisis
Global GDP is expected to increase by 6.4 percent in 2022, down from 8.8 percent last year but still the fastest-growing major economy due to increasing inflationary pressures and an unequal rebound of the labor market, according to the United Nations (UN). The Russian invasion of Ukraine has exacerbated the global economic decline, which is now entering a phase of weak development and increasing inflation, according to the World Bank’s most recent Global Economic Prospects study. There is a possibility of stagflation, which might have negative effects on both middle- and low-income countries.
Economic growth in India has been lowered due to an increase in inflation, supply chain interruptions, and political uncertainty. As a result, many people started to seek other alternatives to generate money. For them, one of the best options is trading indices, which allow Indian investors to make money even in the process of an economic downturn. The World Bank has changed its GDP growth prediction for India for the current fiscal year 2022-23 for the second time in a row (April 2022 to March 2023). Forecasts were reduced from 8.7 percent to 8 percent in April, and now they’re at 7.5 percent.
From 5.7 percent growth in 2021 to 2.9 percent growth forecast in 2022, the global economy is predicted to shrink dramatically. Around that pace is likely to be maintained in 2023-24, as the Ukraine conflict hampers business, investment, and trade in the medium term. Fiscal policy and monetary policy support are eliminated, as well. Developing nations’ per capita incomes, as shown on the website of FxPro, will be roughly 5% lower this year than they were before the pandemic. WESP, the UN Department of Economic and Social Affairs’ report on the state of the world economy, stated that the conflict in Ukraine has thrown Europe’s still-fragile economic recovery into disarray. This is resulting in a humanitarian crisis that is wreaking havoc on the continent while also driving up food and commodity prices and rising global inflationary pressures.
In the fiscal year 2022-23, India’s GDP is expected to fall to 7.5 percent because of increasing prices, supply chain disruptions, and geopolitical concerns, which are expected to counterbalance the rebound in service demand after the pandemic. Fertilizer shortages and rising costs are expected to continue in Bangladesh, India, Pakistan, and Sri Lanka, which will have a detrimental effect on the agricultural industry in the area.
According to the analysis, this would likely lead to lower harvests and higher food costs shortly. Food insecurity in the area is projected to worsen as a result of rising food and energy costs.
What Does The Future Hold For?
In the last 4 months of the previous fiscal year, the GDP growth rate in India slowed to 4.1%, the lowest level in a year. Economic growth, on the other hand, was better than expected. When compared to the first three quarters of the fiscal year 2022 in Asia, the third-largest economy in Asia expanded by 20.1 percent, 8.4 percent, and 5.4 percent. Government incentives and reforms have also been implemented to strengthen the business environment, which will further promote economic growth. According to the bank, this expectation represents a 1.2 percentage point decrease in growth from the January projection.
Economic analysts have been compelled to adjust their growth estimates for this year because of the conflict in Ukraine and its possible economic consequences, and most foresee less growth in 2022. Since there is no way to predict when or for how long this dispute will endure, our analysts anticipate that the crisis might have an impact on US and UK GDP of 0.3–0.5 percent in 2022 despite the lack of information. Most developing economies are in a state of shock as a result of these outside influences.
Because of the increasing inflation rate in the country and the way the economy develops in India, governments should take several steps. One of the main things to consider is decreasing the taxes for businesses to attract new investors from all over the world, which will help the country’s economy to expand. In addition to that, governments should increase interest rates to avoid future deflation and make the country’s currency stronger. Overall, what will be in the future, depends on the geopolitical situation around the world and the measures Indian authorities are going to take.
