The turn of the decade felt like a moment of departure. The COVID-19 pandemic made 2020 an unprecedented year. And then the supply chain whiplash made 2021 feel unprecedented. And now, the Russia-Ukraine war and global stagflation are making 2022 feel unprecedented.
Disruption now feels like ‘business as usual’.
As these tectonic shifts get normalised, businesses with deep reserves of resilience and agility are the ones that are emerging even stronger. We don’t just make cement. We breathe life into the aspirations of homeowners and their families. We stand by them as they envision and execute their dream projects. And as India’s building solutions champion, we are powering the infrastructure growth of a rapidly transforming nation.
Let me first share some thoughts on the macroeconomy.
Global economies recovered from the pandemic shock in 2022 on the back of supportive fiscal and monetary policies and mass vaccination programs. However, in recent months, the war in Ukraine and looming fears of a global recession have posed macro headwinds. The International Monetary Fund (IMF) now expects the world economy to grow at 3.2% in CY22, slowing further to 2.9% in CY23.
These forecasts are 1.2 and 0.9 percentage points lower than its pre-war projections. There are two major fallouts of the current global crisis. One is the tightness in energy markets and concerns around the energy security of some regions. This has indirect implications for many economies.
Secondly, elevated energy prices have spurred a chain reaction, fueling the existing inflationary impulses. This has triggered central banks to normalise monetary policy faster than anticipated, denting consumer confidence and dampening risk sentiment in the financial markets.
As the stance of monetary policy shifts, there is greater turbulence in currency markets. The dollar has strengthened, while the euro and emerging economies have witnessed downward pressure on their currencies. Energy and commodity markets have witnessed heightened volatility. Global supply chain disruptions due to pandemic-induced lockdowns have been replaced by new disruptions due to the war in Ukraine and the lockdowns imposed in China last quarter.
The Indian economy has not remained unscathed by these global developments. India has also witnessed upward pressures on inflation, rate hikes by the RBI and a widening trade deficit. Nevertheless, there are also bright spots in India’s overall economic narrative – which are bolstering our resilience through the broader global economic turmoil.
First, the economic recovery cycle in India remains firmly in place thanks to the significant progress on vaccination and the upswing in public capex. Even during Covid, various government schemes had helped small and medium enterprises and the worst affected sections of the population to weather through the crisis. Activity indicators are now well ahead of the pre-Covid levels, and most estimates peg India’s likely economic growth during FY23 at 7%-plus.
Second, while India’s inflation rate has been above the RBI’s tolerance range for some time, the overshoot has not been as severe as in many other countries. Monetary and fiscal authorities have taken steps to dilute the inflationary pressures, and a normal monsoon this year will help soften these pressures further.
Third, even with a rising trade deficit, India’s external indicators remain supported – with foreign exchange reserves equivalent to more than 9 months of imports despite some decline in recent months.
With these silver linings, India appears to be well placed to ride through an uncertain global economic environment. Looking beyond the current challenges, a robust pipeline of infrastructure projects as well as the government’s pragmatic policies such as the production - linked incentive schemes are helping.
Many industries have witnessed fresh project investment announcements. Foreign direct investment flows have remained strong. The burden of non-performing assets in the banking sector has eased. Start-ups and technology-based new age enterprises have acquired critical mass in India. These sectors are exhibiting a strong momentum – providing new jobs and enhancing customer experiences.
Dynamism in India’s digital ecosystem, diversification of global supply chains away from China and the greater emphasis of investors on sustainable finance also offer new opportunities for India.
Thus, while businesses will need to remain on guard regarding financial market volatility and cost pressures this year, one could expect the medium-term growth recovery to remain on track.
