India's Fixed Investment Spending Is Being Crowded-in As Govt Borrowing Stays Below Target: ICICI Securities

ICICI Securities Report

We retain our non-consensus forecast of 7.5% real gross domestic product growth for FY23, after real GDP was reported to have grown 9.7% YoY in H1 FY23.

We expect exports to regain momentum after the removal of export duties on iron and steel (and their products), while lower global oil prices deliver a positive terms-of-trade shock, lowering the net export deficit.

But fixed investment spending will be the key to sustained growth. In Q2 FY23, gross fixed capital formation grew 10.4% YoY (implying it was 20.8% higher than the pre-Covid level in Q2 FY20).

Strong nominal GDP growth (up 16.2% YoY in Q2 FY23, 21.2% YoY in H1 FY23) is enabling the government’s revenue receipts to grow strongly. In April-October 2022, it reached 61.2% of the FY23 target, versus 46.2% at the comparable stage of FY20 and 45.7% in FY19.

Consequently, the fiscal deficit (which exceeded the FY target in Apr-Oct 2019 and Apr-Oct 201818) has only reached 45.6% of the FY23 target in Apr-Oct 2022.

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