INDIA TO WITNESS GDP GROWTH OF 6.0 PER CENT TO 6.8 PER CENT IN 2023-24, DEPENDING ON THE TRAJECTORY OF ECONOMIC AND POLITICAL DEVELOPMENTS GLOBALLY
ECONOMIC SURVEY 2022-23 PROJECTS A BASELINE GDP GROWTH OF 6.5 PER CENT IN REAL TERMS IN FY24
ECONOMY IS EXPECTED TO GROW AT 7 PER CENT (IN REAL TERMS) FOR THE YEAR ENDING MARCH 2023, THIS FOLLOWS AN 8.7 PER CENT GROWTH IN THE PREVIOUS FINANCIAL YEAR
CREDIT GROWTH TO THE MICRO, SMALL, AND MEDIUM ENTERPRISES (MSME) SECTOR HAS BEEN REMARKABLY HIGH, OVER 30.5 PER CENT, ON AVERAGE DURING JAN-NOV 2022
CAPITAL EXPENDITURE (CAPEX) OF THE CENTRAL GOVERNMENT, WHICH INCREASED BY 63.4 PER CENT IN THE FIRST EIGHT MONTHS OF FY23, WAS ANOTHER GROWTH DRIVER OF THE INDIAN ECONOMY IN THE CURRENT YEAR
RBI PROJECTS HEADLINE INFLATION AT 6.8 PER CENT IN FY23, WHICH IS OUTSIDE ITS TARGET RANGE
RETURN OF MIGRANT WORKERS TO CONSTRUCTION ACTIVITIES HELPED HOUSING MARKET WITNESSING A SIGNIFICANT DECLINE IN INVENTORY OVERHANG TO 33 MONTHS IN Q3 OF FY23 FROM 42 MONTHS LAST YEAR
SURGE IN GROWTH OF EXPORTS IN FY22 AND THE FIRST HALF OF FY23 INDUCED A SHIFT IN THE GEARS OF THE PRODUCTION PROCESSES FROM MILD ACCELERATION TO CRUISE MODE
PRIVATE CONSUMPTION AS A PERCENTAGE OF GDP STOOD AT 58.4 PER CENT IN Q2 OF FY23, THE HIGHEST AMONG THE SECOND QUARTERS OF ALL THE YEARS SINCE 2013-14, SUPPORTED BY A REBOUND IN CONTACT-INTENSIVE SERVICES SUCH AS TRADE, HOTEL AND TRANSPORT
SURVEY POINTS TO 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
India to witness GDP growth of 6.0 per cent to 6.8 per cent in 2023-24, depending on the trajectory of economic and political developments globally. The optimistic growth forecasts stem from a number of positives like the rebound of private consumption given a boost to production activity, higher Capital Expenditure (Capex), near-universal vaccination coverage enabling people to spend on contact-based services, such as restaurants, hotels, shopping malls, and cinemas, as well as the return of migrant workers to cities to work in construction sites leading to a significant decline in housing market inventory, the strengthening of the balance sheets of the Corporates, a well-capitalised public sector banks ready to increase the credit supply and the credit growth to the Micro, Small, and Medium Enterprises (MSME) sector to name the major ones. Nirmala Sitharaman tabled the Economic Survey 2022-23 in Parliament today, which projects a baseline GDP growth of 6.5 per cent in real terms in FY24.
It says, growth is expected to be brisk in FY24 as a vigorous credit disbursal, and capital investment cycle is expected to unfold in India with the strengthening of the balance sheets of the corporate and banking sectors. Despite the three shocks of COVID-19, Russian-Ukraine conflict and the Central Banks across economies led by Federal Reserve responding with synchronised policy rate hikes to curb inflation, leading to appreciation of US Dollar and the widening of the Current Account Deficits (CAD) in net importing economies, agencies worldwide continue to project India as the fastest-growing major economy at 6.5-7.0 per cent in FY23.
According to Survey, India’s economic growth in FY23 has been principally led by private consumption and capital formation and they have helped generate employment as seen in the declining urban unemployment rate and in the faster net registration in Employee Provident Fund. It also points out that the upside to India’s growth outlook arises from (i) limited health and economic fallout for the rest of the world from the current surge in Covid-19 infections in China and, therefore, continued normalisation of supply chains; (ii) inflationary impulses from the reopening of China’s economy turning out to be neither significant nor persistent; (iii) recessionary tendencies in major Advanced Economies (AEs) 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 (iv) this leading to an improvement in animal spirits and providing further impetus to private sector investment.
The Survey says, the credit growth to the Micro, Small, and Medium Enterprises (MSME) sector has been remarkably high, over 30.6 per cent, on average during Jan-Nov 2022, supported by the extended Emergency Credit Linked Guarantee Scheme (ECLGS) of the Union government.
The Capital Expenditure (Capex) of the central government, which increased by 63.4 per cent in the first eight months of FY23, was another growth driver of the Indian economy in the current year, crowding in the private Capex since the January-March quarter of 2022. The results of the National Family Health Survey (NFHS) also show improvement in rural welfare indicators from FY16 to FY20, covering aspects like gender, fertility rate, household amenities, and women empowerment.
The Survey notes with optimism that Indian economy appears to have moved on after its encounter with the pandemic, staging a full recovery in FY22 ahead of many nations and positioning itself to ascend to the pre-pandemic growth path in FY23. With inflation persisting in the advanced economies and the central banks hinting at further rate hikes, downside risks to the global economic outlook appear elevated.
The Survey points out that factors like monetary tightening by the RBI, the widening of the CAD, and the plateauing growth of exports have essentially been the outcome of geopolitical strife in Europe. As these developments posed downside risks to the growth of the Indian economy in FY23, many agencies worldwide have been revising their growth forecast of the Indian economy downwards.
Despite the downward revision, the growth estimate for FY23 is higher than for almost all major economies and even slightly above the average growth of the Indian economy in the decade leading up to the pandemic. Despite strong global headwinds and tighter domestic monetary policy, if India is still expected to grow between 6.5 and 7.0 per cent, and that too without the advantage of a base effect, it is a reflection of India’s underlying economic resilience; of its ability to recoup, renew and re-energise the growth drivers of the economy.
By the time the growth of exports moderated, the rebound in domestic consumption had sufficiently matured to take forward the growth of India’s economy. Private Consumption as a percentage of GDP stood at 58.4 per cent in Q2 of FY23, the highest among the second quarters of all the years since 2013-14, supported by a rebound in contact-intensive services such as trade, hotel and transport, which registered sequential growth of 16 per cent in real terms in Q2 of FY23 compared to the previous quarter. Apart from housing, construction activity, in general, has significantly risen in FY23 as the much-enlarged capital budget (Capex) of the central government and its public sector enterprises is rapidly being deployed.
As per the data on non-financial debt from the Bank for International Settlements, in the course of the last decade, Indian non-financial private sector debt and non-financial corporate debt as a share of GDP declined by nearly thirty percentage points.
The finances of the public sector banks have seen a significant turnaround, with profits being booked at regular intervals and their Non-Performing Assets (NPAs) being fast-tracked for quicker resolution/liquidation by the Insolvency and Bankruptcy Board of India (IBBI). Macroeconomic and Growth Challenges in the Indian Economy
After the impact of the two waves of the pandemic seen in a significant GDP contraction in FY21, the quick recovery from the virus in third wave of Omicron contributed to minimising the loss of economic output in the January-March quarter of 2022. It says that the Global commodity prices may have eased but are still higher compared to pre-conflict levels and they have further widened the CAD, already enlarged by India's growth momentum. Outlook: 2023-24
Dwelling on the Outlook for 2023-24, the Survey says, India’s recovery from the pandemic was relatively quick, and growth in the upcoming year will be supported by solid domestic demand and a pickup in capital investment. 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. 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.
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. Both official and unofficial sources confirm that employment levels have risen in the current financial year, as the Periodic Labour Force Survey (PLFS) shows that the urban unemployment rate for people aged 15 years and above declined from 9.8 per cent in the quarter ending September 2021 to 7.2 per cent one year later (quarter ending September 2022). A recent CIBIL report (ECLGS Insights, August 2022) showed that the scheme has supported MSMEs in facing the COVID shock, with 83 per cent of the borrowers that availed of the ECLGS being micro-enterprises. In addition, the National Family Health Survey (NFHS) in India shows improved rural welfare indicators from FY16 to FY20, covering aspects like gender, fertility rate, household amenities, and women empowerment.
So far, India has reinforced the country’s belief in its economic resilience as it has withstood the challenge of mitigating external imbalances caused by the Russian-Ukraine conflict without losing growth momentum in the process. The three challenges like COVID-19 related disruptions in economies, Russian-Ukraine conflict and its adverse impact along with disruption in supply chain, mainly of food, fuel and fertilizer and the Central Banks across economies led by Federal Reserve responding with synchronised policy rate hikes to curb inflation, leading to appreciation of US Dollar and the widening of the Current Account Deficits (CAD) in net importing economies. Rising commodity prices also led to higher inflation in the Emerging Market Economies (EMEs), which otherwise were in the lower inflation zone by virtue of their governments undertaking a calibrated fiscal stimulus to address output contraction in 2020.
Source: https://pib.gov.in/
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