According to a Reuters report, the Bank’s chief economist, Indermit Gill, put a somber twist on the June forecast, saying 2023 would mark one of the slowest growth years for advanced economies in five years. last decades. This makes India’s projected number even brighter.
Here are some other forecasts for India — 5.9% by the International Monetary Fund (IMF) and 6.5% by the Reserve Bank of India (RBI). Bibek Debroy, chairman of the Economic Advisory Council to the Prime Minister, also puts the figure at 6.5%. Speaking to ET, he says forecasters tend to underestimate India’s growth figures. “In 2022-23, excluding government, forecasts were generally reluctant to cross that mental threshold of 7%. It was almost like a price for a product, with 6.9% preferring 7.1%,” he says. Finally, India’s gross domestic product (GDP) growth rate for 2022-2023 was 7.2%, which is higher than most forecasters had estimated. Debroy concedes, however, that India should aspire to growth of between 7% and 7.5% in the next three to five years.
What might be the most likely growth figure for the current fiscal year? Despite headwinds – including a slow recovery in domestic manufacturing, uncertain geopolitics and a looming threat of El Nino which can have an impact monsoon – THE Indian economy could grow about 6.5% in FY24. That’s short of an ambitious growth rate of 7% or more. Not so long ago, India aspired to achieve a double-digit growth rate – a reasonable target as the country posted 8.2% in 2016-17 and 7.2% in 2017-18 before head south. In 2019-20, a year largely unaffected by the Covid pandemic, India’s GDP growth rate was low at 3.7%.
According to EY India’s Chief Policy Advisor, DK Srivastava, India’s GDP growth in FY24 is expected to be 6.2-6.3%. “Our assessment is that the actual outcome would depend on the severity of the impact of El Niño on the monsoon and, therefore, on agricultural production. There is a good chance that this negative impact will be moderate this year due to the neutralization of El Nino by the Indian Ocean Dipole,” he says.
El Nino is a climatic pattern linked to an abnormal warming of surface waters in the equatorial Pacific Ocean. Government forecaster India Meteorological Department (IMD) said it could affect the monsoon, especially its second period in August and September. The dipole, on the other hand, refers to the sea surface temperatures of the Indian Ocean. The monsoon is an important event in India’s economic calendar because half of the country’s net sown area is still rainfed. The importance must be highlighted as India’s Gross Value Added (GVA) growth rate in agriculture and related sectors has been positive throughout the Covid-19 period (4.1% in 2020 -21, 3.5% in 2021-22 and 4% in 2022-23) while most other sectors fell. (GVA is GDP plus subsidies minus taxes.) Any sharp drop in agricultural growth will have a negative impact on GDP. CAN THIS BE SUPPORTED?
There is another concern. Can India achieve a robust growth rate sustainably as the aftershocks of the pandemic fade? According to a recent analysis by EY, India could look forward to a multi-year growth cycle “with a resumption of the private investment cycle for manufacturing and infrastructure” despite the risks of geopolitical fragmentation and uncertainties in the global economy.
EY’s Srivastava says some sectors like manufacturing have yet to fully recover. “Manufacturing was contracted in FY20, pre-Covid. The compound annual growth rate of this sector from FY2019 to FY23 is just under 3%,” he said, adding that the sector needs policy scaffolding to improve total output. and create jobs. “This will bring the Indian economy closer to its potential growth rate of 7%,” he adds.
Rumki Majumdar, an economist at Deloitte India, says unlike agriculture, sectors like manufacturing and construction have seen an inconsistent recovery. “We expect growth in 2023-24 of between 6% and 6.5%. GDP growth will be driven by a likely recovery in private investment which will relaunch the virtuous cycle of job creation, incomes and productivity,” she said, adding that inflation could however remain above the RBI comfort zone.
“A below-normal monsoon caused by El Niño can put severe pressure on the agricultural sector and rural demand, slowing consumption growth,” Majumdar says. “It will also put pressure on food inflation.” The RBI, which forecasts a growth rate of 6.5%, is banking mainly on the liberal capital expenditure (capex) announced in the last Union budget. Capital investment expenditure was increased by 33% to Rs 10 lakh crore. The interest-free loan of Rs 1.3 lakh crore to the states is also conditional on the amount being to be spent in the current financial year itself.
“The knock-on effects of the sustained increase in public investment in recent years are expected to boost private investment in 2023-24,” says the central bank’s annual report for 2022-23. The medium-term outlook may depend on the ability of the Union government to maintain its history of high capital expenditure.
The RBI raised the repo rate by 250 basis points between May 2022 and February 2023 with one goal: to tame inflation, a critical factor in estimating future growth. Over the past year, headline inflation averaged 6.7%, 115 basis points higher than a year ago. Despite high food, energy and commodity prices both domestically and internationally, as well as multiple other challenges such as aggressive monetary policy tightening and tremendous geo-economic fragmentation, the Indian economy has shows resilience in 2022-23, the RBI report points out.
As we are now in the third month of the current fiscal year, what is evident is that some of these past challenges have lessened but not gone away. The global scenario, especially that of advanced economies, is still bleak – and this could impact India’s exports as well as foreign direct investment inflows. Even against this backdrop, several economists believe, India can achieve a decent GDP growth rate of 6.5% for the year unless a new monster emerges and wreaks havoc on those calculations.