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Re-globalisation to drive growth momentum in 2022

* India's goods exports grew 41.6% in 2021, outpacing most of the world (including Taiwan, Korea, China, Vietnam and Bangladesh). Services exports stayed robust too, and we believe both will boost growth in 2022.

* 2021 was the first year since 2010 in which global trade volume grew more than twice as fast as global GDP. In 2022 too, global trade is likely to solidly outpace global GDP, and this will be a key factor buoying India's economy.

* Fixed investment spending was up 11% YoY in Q2-FY21/22, and will likely strengthen further on the back of accelerating corporate profits (evident in surging corporate tax revenue, which was up 90%YoY in Apr-Nov21 and rose 22.5% from the Apr-Nov19 level).

* Despite renewed disruptions from India's Third Wave of Covid, we expect real GDP to grow 9.6% in FY21/22 and 8.4% in FY22/23, boosted by robust exports and an acceleration in fixed investment spending, with modest increases in the CAD to 1% of GDP in FY21/22 and 1.5% in FY22/23.

The BoP current account swung back to a deficit in July-September 2021 of 1.3% of GDP (from a surplus of 0.9% of GDP in the previous quarter), thus pushing the 4-quarter moving average of the current account also into a small deficit (0.4% of GDP), the first such deficit in 6 quarters. On the chart below, we show the higher-frequency customs trade balance (which is wider than the BoP merchandise deficit).This widened to a deficit of 6.4% of GDP (the largest in 9 quarters, and much wider than the 4.3% of GDP trade deficit in the Apr-Jun 2021 quarter), playing the key role in pushing the current account back into deficit in the latest quarter. The invisibles (services and transfers) surplus has continued to widen (to 5% of GDP in Jul-Sep 2021, from 4.75% of GDP in Apr-Jun 2021 and 4.6% of GDP a year ago, in Jul-Sep 2020), contributing toward keeping the current account deficit from widening too sharply.

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