New Delhi: Sensing the global slowdown that may hurt exports and other similar economic parameters, India on Tuesday expected that its economy will grow 6–6.8 per cent in the next financial year starting April 1, down from the 7 per cent projected for the current financial year and 8.7 per cent in 2021–22.
It is the lowest economic growth in three years on the back of macroeconomic challenges in the next fiscal. Even at that pace, the country’s economic growth for the next fiscal year will still be the fastest among major economies in the world, the government said.
As per the government’s annual Economic Survey, tabled by finance minister Nirmala Sitharaman in Parliament ahead of the Union Budget on Wednesday, India’s economy will grow 6–6.8 per cent in the next fiscal year. The Survey, however, noted that borrowing cost will likely remain "higher" for a longer period as entrenched inflation may prolong the tightening cycle. "The baseline scenario for growth in 2023–24 was 6.5 per cent, with nominal growth, which accounts for inflation, forecast at 11 per cent," the Survey highlighted.
The Survey is mainly the government’s annual review of how the economy fared in the past year. It forecasts growth in a variety of economic indicators for the coming fiscal year, including exports, imports, inflation, and fiscal position, as well as foreign direct investment, the digital economy, employment, manufacturing, banking, and corporate, among others. However, top officials in the government have expressed their concerns over its economy, saying that India’s gross domestic product (GDP) growth is expected to witness a slowdown for a second straight year due to tightening financial conditions and supply chain disruptions from a prolonged war in Europe.
Briefing the media after the Survey was tabled in Parliament, chief economic adviser (CEA) V. Anantha Nageswaram said India’s GDP growth is going to “do better in the remainder of the decade”, where banking, non-banking, and corporate sectors among others have good balance sheets after a long time. “Besides, India’s improved balance sheets and digital infrastructure together will add anywhere between 50-100 basis points to India's potential GDP growth,” he said, adding that there was talk of India having prematurely deindustrialised, but “I would say India had not industrialised enough.”
Throwing light on various key global rating agencies, the CEA also said the IMF, in its World Economic Outlook update, has maintained India’s GDP forecast for the current FY at 6.8 per cent, for the next FY at 6.1 per cent and for 2024–25 at 6.8 per cent. "The recovery of the economy is complete. Non-banking and corporate sectors now have healthy balance sheets. Hence, we don’t have to speak of pandemic recovery any more. We have to look ahead to the next phase," he added.
The Survey, prepared by Nageswaran, also highlighted three "shocks" that have hit the global economy since 2020. "Starting with the pandemic-induced contraction of the global output, the Russian-Ukraine conflict last year led to a worldwide surge in inflation. And then, central banks across economies led by the US Federal Reserve responded with synchronised policy rate hikes to curb inflation. The rate hike by the Fed also drove the widening of the current account deficits and increased inflationary pressures as well. However, the 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," it said.
As per the Economic Survey, the export outlook may remain flat in the coming year if global growth does not pick up. "In such cases, it said, diversification in export destinations and the product basket through free trade agreements (FTAs) would be useful to enhance trade opportunities. At times when the base global growth and global trade is not growing, export growth will have to come predominantly through market share gains," it noted.
"Though India’s merchandise exports have touched an all-time high of $422 billion in 2021-22, the world economy has started facing formidable headwinds and the ripple effect of the global trade slowdown has started reflecting in India's goods export growth," the Survey said.
According to government data, India's exports contracted by 12.2 per cent to $34.48 billion in December 2022 due to the global demand slowdown and the trade deficit widened to $23.76 billion during the same period. "During April-December this fiscal, the country's overall exports rose 9 per cent to $332.76 billion, while imports increased 24.96 per cent to $551.7 billion," the data showed.
The Survey also predicted that India’s e-commerce market is projected to grow at 18 per cent annually through 2025, while merchandise exports of $332.8 billion for April-December 2022. "India is the largest recipient of remittances globally, receiving $100 billion in 2022," it said.
On the rising price pressure in the country, the Survey also pointed out that the central bank’s projection of retail inflation at 6.8 per cent in the current fiscal is neither too high to deter private consumption nor so low as to weaken the inducement to invest. "However, entrenched inflation may prolong the tightening cycle and therefore, borrowing costs may stay higher for longer," it said.
On fiscal position, the Survey further said that financial markets do not treat advanced and emerging economies similarly on fiscal deficits. Therefore, it stands to reason that they reap greater rewards for fiscal prudence. "Amidst the continuing global uncertainties and risks, the fiscal glide path illuminates the path for fiscal policy," the Survey said....