As the fiscal 2021-22 draws to a close, it is clear that robust corporate profits, driven partly by external demand for goods and services, alone can’t produce a broad-based economic rebound. Aggregate demand continues to be weak and the changed geopolitical situation have added to the uncertainties. Public expenditure can’t continue to hold the fort for long, given the fiscal constraints.
Private consumption, which rose by a decent 7% in Q3, has since been under pressure as consumer sentiment remained subdued in the fourth quarter amid the Omicron onslaught and uncertainties around the spill-over effect of the Russia-Ukraine conflict. There is no visible turnaround in private investments yet after a sharp slowdown in the growth of fixed investments in the third quarter to just 2%.
As oil prices remain elevated, retail inflation will likely breach the RBI’s threshold (2-6%) for a third straight month through March, likely making it incumbent on the central bank to reconsider its accommodative monetary policy stance.