Economic Survey 2023: India's Economy To Grow 6.5% In FY24
Nominal GDP is estimated to grow 11% in FY24, the survey estimated.
India's economy is likely to grow 6.5% in 2023–24 compared with 7% this fiscal and 8.7% in 2021–22, according to the Economic Survey for 2022–23.
Nominal GDP is estimated to grow 11% in FY24, according to the survey tabled by Finance Minister Nirmala Sitharaman ahead of the budget on Tuesday. India will likely remain the fastest-growing major economy in the world.
The recovery from the pandemic was relatively quick, with growth next fiscal to be supported by solid domestic demand and a pick-up in capital investment, it said. The uptick in private consumption has also boosted production activity, resulting in an increase in capacity utilisation across sectors, said the survey.
The central government's capital expenditure, which increased by 63.4% in the first eight months of FY23, was another growth driver for the economy in the current year, crowding out private capex since January-March 2022, the survey said. "On current trends, it appears that the full year’s capital expenditure budget will be met."
Apart from housing, construction activity, in general, has significantly risen in FY23 as the much-enlarged capex of the central government and its public sector enterprises is rapidly being deployed, the survey said. Going by the capex multiplier estimated for the country, the economic output of the country is set to increase by at least four times the amount of capex, it said.
A sustained increase in private capex is also "imminent" with the strengthening of the balance sheets of the corporates and the consequent increase in credit financing it has been able to generate.
Despite strong global headwinds and tighter domestic monetary policy, if India is still expected to grow between 6.5 and 7.0%, 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, the survey said.
The government is also on track to achieve its fiscal deficit target of 6.4% of GDP for FY23. "The gradual decline in the Union government's fiscal deficit as a percentage of GDP, in line with the fiscal glide path envisioned by the government, is a result of careful fiscal management supported by buoyant revenue collection over the last two years," stated the survey.
Key Highlights
With an emphasis on infrastructure-intensive sectors like roads and highways, railways, and housing and urban affairs, the increase in capex has large-scale positive implications for medium-term growth.
The government’s capex-led strategy will enable India to keep the growth-interest rate differential positive, leading to a sustainable debt-to-GDP ratio in the medium term.
Growth is driven by private consumption, higher capex, strengthening corporate balance sheets, credit to small businesses, and the return of migrant workers to cities.
If inflation declines in FY24 and the real cost of credit does not rise, credit growth is likely to be brisk.
The RBI's projection of 6.8% inflation this fiscal is outside the upper target limit. It is not high enough to deter private consumption and is also not too low to weaken the inducement to invest.
Borrowing costs may remain "higher for longer," and entrenched inflation may prolong the tightening cycle.
The challenge of rupee depreciation persists with the likelihood of further interest rate hikes by the U.S. Federal Reserve.
The current account deficit may continue to widen as global commodity prices remain elevated and economic growth momentum stays strong.
If CAD widens, the rupee may face depreciation pressure, though the overall external situation is likely to remain manageable.
India has sufficient forex reserves to finance CAD and intervene in the forex market to manage rupee volatility.
Elevated downside risks to global economic outlook with inflation persisting in the advanced economies and hints of further rate hikes by central banks.
Credit disbursal, the capital investment cycle, the expansion of the public digital platform, and schemes like production-linked incentives, the National Logistics Policy, and PM Gati Shakti will drive economic growth.
Bank credit growth is likely to be brisk in FY24 on the back of benign inflation and moderate credit costs.