Economic Survey projects GDP growth at 6-6.8% for FY24

The survey, tabled in Parliament on January 31 underlined the fact that “agencies worldwide continue to project India has the fastest growing major economy” despite the three shocks of Covid-19, the Russia-Ukraine war, and synchronised policy rate hikes by central banks across the world.

India’s GDP will grow at a baseline value of 11% in nominal terms and 6.5% in real terms in 2023-24, according to the 2022-23 Economic Survey, which put real growth in the range of 6-6.8% depending on downside and upside risks.

The survey credited private consumption and (government driven) capex (capital expenditure) as the principal drivers of growth in 2022-23.

It added that structural reforms undertaken over the past eight years -- GST, inclusion, privatisation, ease of doing business, creation of a public digital infrastructure, and other such -- haven’t really paid off on account of shocks to the economy such as balance sheet stress of banks and private sector companies, the pandemic, and a global commodity price shock. As these “fade away”, the “economy is well placed to grow at its potential in the coming decade”, the survey argued.

The survey, tabled in Parliament on January 31 underlined the fact that “agencies worldwide continue to project India has the fastest growing major economy” despite the three shocks of Covid-19, the Russia-Ukraine war, and synchronised policy rate hikes by central banks across the world that led to appreciation of the US dollar and widening of the current account deficit (CAD) in net importing economies.

The survey credited private consumption and (government driven) capex (capital expenditure) as the principal drivers of growth in 2022-23 even as it underlined that “private capex soon needs to take up the leadership role to put job creation on fast track”.

Chief Economic Adviser V Anantha Nageswaran, the architect of the Economic Survey attributed the reason behind the range to geopolitical uncertainties globally.

He said the survey gave a range between 6% and 6.8% deliberately. “We do understand that global political and economic environment remain still ripe with uncertainties. We have many known-unknowns as well as unknown-unknowns.”

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“We also do not know how the speed with which global economy recovers, will lead to the kind of inflation pressures that we saw last year,” he said. In this context, he pointed to the rapid reopening of the Chinese economy. And “as of now” the US economy looks to avoid “a full-fledged formal recession”, he added.

The CEA said international crude oil and industrial metal prices would also impact the GDP growth because they are higher compared to December 2022. “From the Indian standpoint, a moderate to somewhat significant global economic slowdown will [lead to better outcome] because it would lead to lower commodity prices and secession of interest rate tightening in the developed world, weaker dollar, etc.,” he said. “Therefore, in order to make sure, that we fully accommodate the downside risks the band has been kept at 6 to 6.8 %, and baseline number at 6.5 percent.”

The survey identified four key upsides in India’s growth outlook. They are, limited health and economic fallout for the rest of world from the surge in Covid-19 infections in China; inflationary impulses from China’s opening up turning out to be neither significant nor persistent; and recessionary conditions in major advanced economies triggering a cessation of monetary tightening and return of capital flows to India amidst stable domestic inflation below 6%. These three factors, the Economic Survey reasoned, would generate the fourth upside, an improvement in animal spirits providing further impetus to private sector investment.

Commenting on India’s performance in 2022-23 -- economic growth “in the range of 6.5-7% -- the survey noted that while RBI’s interest rate hikes, widening of CAD, and plateauing export growth, posed downside risks to India’s growth, “the growth estimate for 2022-23 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”. India’s growth performance, “and that too without the advantage of a base effect”, the survey noted, was “a reflection of India’s underlying economic resilience, of its ability to recoup, renew and reenergise the growth drivers of the economy”, with “the domestic stimulus to growth seamlessly replacing the external stimuli”.

This achievement has been made in a uniquely difficult global economic environment which has suffered three global economic shocks since 2020, unlike in the past when global economic shocks were severe but spread across time, the survey said.

Praising the post-pandemic capex focus in central government spending, the survey underlined that the capex focus in the last two budgets “was not an isolated initiative meant only to address the infrastructure gaps in the country” but “part of a strategic package aimed at crowding-in private investment into an economic landscape broadened by the vacation of non-strategic public sector enterprises (disinvestment) and idling public sector assets”.

Indicating that the government will adhere to its fiscal deficit target for 2022-23 and continue on the fiscal consolidation path in the Union Budget, the survey said that higher buoyancy in both direct taxes and Goods and Services Tax (GST) along with limited growth in revenue expenditure “should ensure the full expending of the capital budget within the budgeted fiscal deficit”.

With concerns around a K-shaped recovery in the Indian economy, the Economic Survey argued that India’s growth performance has been inclusive with the Periodic Labour Force Survey (PLFS) showing a lowering of unemployment rates and increase in labour force participation rate. Schemes such as the Emergency Credit Line Guarantee Scheme (ECLGS) and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) also played their part in helping smaller firms and the poor, the survey said.

Lakshmi Iyer, CEO-Investment Advisory at Kotak Investment Advisors Ltd said: “The economic survey has projected FY 2024 growth at 6-6.8%. This seems a tad stretched given the fact that there is a global slowdown, specifically in global exports. It also comes at a time when domestic demand is slowing down initially and we need to be fiscally prudent, especially after almost 3 years of fiscal breach (globally too) due to the pandemic phase.”

Experts are optimistic about India’s growth next year provided the government gives proper policy push. “While there are talks of a global slowdown, expectation continues for India to be the fastest growing economy in the world. Though inflation has been amplified by geo-political challenges, India should quickly create value based global supply chains so as to attain cost effective growth,” said Yezdi Nagporewalla, CEO, KPMG in India.

“The strong balance sheet of banks and corporates are rightly assumed to give a private capex push in addition to the government capex push if the assumptions on the external and demand front are realised,” Sanjeev Krishan, Chairperson, PwC in India, added.