Economic Survey 2022-23 projected that India’s baseline gross domestic product (GDP) is expected to grow at 6.5 per cent in real terms and 11 per cent in nominal terms in FY24. The survey’s growth projection is lower than the 7 per cent growth projected by statistics ministry's first advance estimate for this financial year.
“The projection is broadly comparable to the estimates provided by multilateral agencies such as the World Bank, the IMF, and the ADB and by RBI, domestically. The actual outcome for real GDP growth will probably lie in the range of 6.0 per cent to 6.8 per cent, depending on the trajectory of economic and political developments globally,” the survey, tabled in Parliament today, says.
The survey says that India has recovered relatively quicker from the Covid-19 pandemic and that growth in the coming financial year is expected to be supported by robust domestic demand and a recovery in capital investment.
Downside risks
Despite India’s growth prospects remaining bright, there would be downside risks from bleak global economic prospects. Multi-decadal high inflation forced central banks of various countries to tighten financial conditions, and the impact of such monetary tightening would slowdown economic activities in advanced economies. Adverse impact of spillovers from the prolonged stress on supply chains and geo-political uncertainties due to conflict, have further made the global outlook bleak.
“Hence, global growth is forecasted to slow from 3.2 per cent in 2022 to 2.7 per cent in 2023 as per IMF’s World Economic Outlook, October 2022. A slower growth in economic output coupled with increased uncertainty will dampen trade growth. This is seen in the lower forecast for growth in global trade by the World Trade Organisation, from 3.5 per cent in 2022 to 1.0 per cent in 2023,” the survey says.
The survey points out that there are several risks to the current account balance. Though commodity prices have cooled off from record highs, they still remain above pre-conflict levels. Strong domestic demand along with elevated commodity prices is expected to push up India’s total import bill, thus unfavourably impacting the current account balance. It also highlights that these might be exacerbated by a stagnating export growth due to weak global demand. The survey cautions that if the current account deficit widens further, Indian rupee might face depreciation pressure.
“Another risk to the outlook originates from the ongoing monetary tightening exercise. While the pace of rate hikes has slowed, major central banks have reaffirmed their hawkish stance on inflation. Entrenched inflation may prolong the tightening cycle, and therefore, borrowing costs may stay ‘higher for longer’. In such a scenario, global economy may be characterised by low growth in FY24. However, the scenario of subdued global growth presents two silver linings – oil prices will stay low, and India’s
CAD will be better than currently projected. The overall external situation will remain manageable,” the survey says.
Reasons for cheer
The survey highlights that several factors add to the upside to India’s growth. The recent surge in Covid-19 infections in China would have limited health and economic fallout for the rest of the world, thereby adding to the continued normalisation seen in supply chains. It says that inflationary impulses from the reopening of China’s economy would neither be significant nor persistent. “Recessionary tendencies in major AEs (advanced economies) triggering a cessation of monetary tightening and a return of capital flows to India amidst a stable domestic inflation rate below 6 per cent; and this leading to an improvement in animal spirits and providing further impetus to private sector investment,” the survey says.
The survey says that the structural changes implemented in the last couple of years would support the growth trajectory. “The private sector – financial and non-financial – was repairing balance sheets, which led to a slowdown in capital formation in the previous decade. The financial system stress experienced in the second decade of the millennium, evidenced by rising nonperforming assets, low credit growth and declining growth rates of capital formation, caused by excessive lending witnessed in the first decade-plus, is now behind us,” the survey says.
Private sector’s healthy financials highlight that a new private sector capital formation cycle is now visible. Making up for the lack of capital expenditure by the private sector, the government increased its capital expenditure substantially. “Budgeted capital expenditure rose 2.7X in the last seven years, from FY16 to FY23, re-invigorating the Capex cycle. Structural reforms such as the introduction of the Goods and Services Tax and the Insolvency and Bankruptcy Code enhanced the efficiency and transparency of the economy and ensured financial discipline and better compliance,” the survey says.
