India's Economic Recovery Steady But Fuel Shortage, High Oil Prices Could Be Spoilers: UN Report

India is expected to grow at a rate of 6.5 per cent 2021-22, a fall from the 8.4 per cent GDP forecast in the previous financial year, the United Nations (UN) has said, adding that though the economic recovery is on a "solid path" amid rapid vaccination progress, coal shortages and high oil prices could put the brakes on economic activity in the near term.

The flagship United Nations World Economic Situation and Prospects (WESP) 2022 report, has said that India's GDP is expected to grow at 6.5 per cent in fiscal year 2022, a contraction from the estimated growth of 8.4 per cent in fiscal year 2021.

Growth is projected to further slow down to 5.9 per cent in the financial year 2023, the report said.

On a calendar year basis, the report says that India's GDP is projected to expand by 6.7 per cent in 2022 after a 9 per cent expansion in calendar year 2021, as base effects wane.

GDP growth for the country is forecast to slow down to 6.1 per cent in calendar year 2023, the report said.

“India's economic recovery is on a solid path, amid rapid vaccination progress, less stringent social restrictions and still supportive fiscal and monetary stances,” it noted.

The WESP report further observed that for India, robust export growth and public investments underpin economic activity, but high oil prices and coal shortages could put the brakes on economic activity in the near term.

“It will remain crucial to encourage private investment to support inclusive growth beyond the recovery,” it added.

The report further noted that while still vulnerable, India is in a better position to navigate financial turbulence compared to its situation during the “taper tantrum” episode after the 2008-2009 global financial crisis.

This is due to a stronger external position and measures to minimise risks to bank balance sheets. In the medium-term, scarring effects from higher public and private debt or permanent impacts on labour markets could reduce potential growth and prospects for poverty reduction.

In India, inflation is expected to decelerate throughout 2022, continuing a trend observed since the second half of 2021 when relatively restrained food prices compensated for higher oil prices.

A sudden and renewed rise in food inflation, however, due to unpredictable weather, broader supply disruptions and higher agricultural prices, could undermine food security, reduce real incomes and increase hunger across the region.

The report said that the global economic recovery is facing significant headwinds amid new waves of COVID-19 infections, persistent labour market challenges, lingering supply-chain challenges and rising inflationary pressures.

In India, a deadly wave of infection with the Delta variant stole 240,000 lives between April and June 2021 and disrupted economic recovery.

“Similar episodes could take place in the near term,” the report said.

It also noted the “important step” taken by India to commit to 50 per cent of its energy mix coming from renewable sources by 2030 and to reaching net-zero emissions by 2070.