Positive spots and challenges in 2023

As we approach 2023, India's GDP may still be the fastest expanding at 6-7 percent, but two major obstacles, high
inflation and decreasing exports may cause problems. Both have the ability to dampen economic development. Though
retail inflation has recently fallen, it remains excessive, and the geopolitical and global environment might reverse it at any
time. As it stands, food and gasoline inflation remain high.
Slowing global economy and cooling demand would be the two key reasons weighing on India's exports, which had shown
indications of improvement in recent quarters. According to a CARE ratings research analysis, India's goods exports are expected to
fall by more than 2% in 2022-23 and expand by just 1.5%. India's merchandise exports increased by 11.1 percent in the first eight
months of the year to $295.3 billion, but the rating agency believes that the full-year export growth would be 2.3 percent lower than
the record $422 billion recorded in 2021-22. This is not a promising scenario. On the plus side, the Reserve Bank of India released
statistics indicating that bank balance sheets will exhibit double-digit growth in 2021-22, following a seven-year hiatus. In the first half
of 2022-23, credit growth reached a 10-year high. To accommodate the spike in loan demand, banks may need to boost deposit
rates even more. According to the RBI report on the trends and growth of banking in India, gross non-performing assets (bad debt)
are also declining. The incremental credit-deposit ratio reached a four-year high as credit growth increased and deposit growth
decreased.
Loans to Indian banks increased 17.5% year on year in the two weeks ending December 2, 2022, while deposits increased 9.9%.
The Indian economy showed signs of gradual strengthening of growth momentum, based on macroeconomic fundamentals,
according to the RBI, adding that this occurred in the context of an uncertain global environment caused by globalisation of inflation,
energy and food shortages, and synchronised tightening of monetary policy globally. The gross NPA has dropped from close to
double-digits four years ago to 5.8 percent by March 2022. Another encouraging factor is that substantial infrastructure investment
has helped to jump-start the economy. This is clear from the fact that steel demand is strong, with a 6.8 percent increase. Steel
production has peaked at 120 million tonnes this year, with plans to increase output to 200 million tonnes per year. With building
ramping up, there has been some increase in employment, and there are already signs of several corporations relocating their
production base from China to India. One area that has yet to be addressed is the MSME sector, which has been struggling since
demonetisation in 2016, followed by the slow rollout of GST and the current Covid lockout. All of this has resulted in jobless growth in
the Indian economy. To revert this tendency, India needed to do something radical in the coming months, and the February 1 budget
provided an opportunity for some big-ticket change to give much-needed funding to the MSME sector.
The economy was becoming more formalised as digitalization and GST increased. This is a wonderful trend, but the
MSMEs, who rely heavily on informal funding, were unable to withstand the enormous costs associated with the formalisation
of the sector. To get this industry back on track, the government must settle this paradox. This will boost not just job creation,
but also manufacturing and exports.
To address the financial challenges of MSMEs, the government should think outside the
box and develop a credit card system similar to the kisan credit cards. The government
is currently putting the finishing touches on a merchant credit card scheme for
merchants and a Vyapar credit card for micro units in order to offer credit support and
encourage tiny industries to enter the official financial system. Micro industries account
for 90% of the country's 6.3 crore MSMEs. This is in response to a suggestion made by a
Parliamentary Standing Committee. MSMEs employ 11 million people in the country.
The goal is to encourage roadside sellers, kirana, and tiny businesses to join the banking
system. The cards will offer subsidised loans, and there may be some consistency in the
advantages offered. Overall, the economic outlook looks to be mixed for India as it enters
2023, but there are issues that must be addressed quickly to keep the economy on track.
The Indian economy's problems are not insurmountable at the present, and 2023 seems
promising.