The year 2022 was the third consecutive year of turbulence, hit by the Russian invasion of Ukraine after two horrible years of pandemic. While the economy gradually moved towards recovery, the easy money policy coupled with other factors led to sharp increase in inflation. Central banks\u2019 move across the world to control led to unintended consequences in the form of currency depreciation. Here is a look at some of these developments of the year.<\/p>\n
Despite the global geo-political uncertainty, year 2022 saw significant recovery in India\u2019s economic performance. After staying below the pre-pandemic level for eight quarters, GDP surpassed the pre-pandemic level by 3.8% and 7.6% during quarter ended June\u201922 and Sept\u201922. Sept\u201922 quarter was the first when all the eight segments, which are reported separately, recorded growth over their pre-pandemic level. However, there are still sub-segments such as aviation, hotel industry and 3-wheelers which are still trending below the pre-pandemic level. Further, the efforts to sustain economy through easy money policy led to significant increase in inflation which touched 7.8% in April\u201922. While a part of this is due to food and fuel inflation, even the core inflation is persisting at about 6% level. The impact of monetary tightening on growth is still an uncertainty and would remain high on policy agenda during the coming year.<\/p>\n
With inflation crossing the mandated limit, the Monetary Policy Committee (MPC) began its tightening exercise during the year. Repo rate, the rate at which RBI lends to banks, was raised by 40 basis points in May\u201922 in an off-cycle meeting and has been raised thrice more after that. The rate now stands at 6.25% from 4% till May\u201922. The rate was brought down to 4% in March\u201922 when the pandemic began and stayed at that level for over two years. Low interest rate and high liquidity in the economy facilitates easier access to loans and helps sustain economic momentum. Liquidity, loosely the excess money in the banking system, has come down to Rs 1.4 lakh crore in Oct-Nov\u201922 from as much as Rs 8 lakh crore till about Jan\u201922.<\/p>\n
The rupee, indeed all global currencies, has been under pressure since the beginning of the year as a result of monetary tightening by US fed. Rupee moved from Rs 74.5 per dollar at the beginning of the year to a low of Rs 83.3 in November, depreciation of over 12%. This is a result of flight of capital from India to US which became more attractive as a result of higher interest rate. The phenomenon was a stark reminder of \u2018taper tantrum\u2019 witnessed in 2013 when Fed announced that it would taper off its quantitative easing (QE) program and begin monetary tightening. The rupee had depreciated by 15% between May and Aug\u201913 and India\u2019s foreign reserve had suffered a significant depletion as a result of RBI\u2019s effort to maintain value of rupee. While rupee has recovered marginally since November, exchange rate may remain under pressure in the coming year.<\/p>\n
Government unveiled an ambitious National Logistics policy (NLP) in Sept\u201922. As a part of it, Unified Logistics Interface Platform (ULIP) was launched to integrate existing data sources of all concerned ministries, departments and state governments. This would also be mapped with all production centres along with the existing infrastructure. The platform would provide real time information to all stakeholders including logistics service providers, industries etc and help them plan movement of their goods as per the available network capacity. The mapping would also help visualize the entire network, understand the capacity constraints and build additional infrastructure as required. The ultimate objective is to bring down logistics cost from about 14% of GDP to less than 10%. While the plan is laudable as the transport infrastructure in the country is, indeed, highly inadequate and disorganized, it would be a challenge to bring about a transformation considering the multiplicity of authorities, varying priorities of state governments and issues related to land acquisition. A case in point is the bullet train project which got delayed due to inadequate focus of the state government to acquire required land.<\/p>\n
The biggest corporate and financial sector development during the year was the announcement of merger of HDFC Ltd and HDFC Bank. HDFC Ltd is a non-banking finance company (NBFC) engaged in home loan business. HDFC bank is a subsidiary of HDFC ltd but bigger in size than HDFC Ltd. Despite having a higher cost structure and relatively restricted business as an NBFC, HDFC Ltd functioned independently as it was exempted from requirements such as maintaining CRR & SLR, priority sector lending etc that banks are subjected to. With regulatory changes initiated by RBI after the collapse of IL&FS, NBFCs, especially the larger ones, would come on a par with banks in terms of regulations reducing the gain from \u2018regulatory arbitrage\u2019.<\/p>\n