The Finance Ministry on Monday predicted a 7 per cent GDP growth rate for India in financial year 2022-23 even as global headwinds are expected to take a toll. The ministry in its Monthly Economic Review also said that retail inflation will fall in line with wholesale inflation for January, which was lowest in 25 months.
It also forecast a drop in fiscal deficit, as services exports are expected to rise further, while consumption which relies on imports will be dropping.
The Monthly Economic Review said, “Amid a gloomy global outlook and rising borrowing costs, the real GDP in Q3 of 2022-23 registered a YoY growth of 4.4 per cent. Sequentially, the growth in Q3 over Q2 at 3.6 per cent is the same as Q2 over Q1, indicating the sustenance of growth momentum in the first nine months of the year. These estimates reaffirm the ability of the Indian economy to grow on the strength of its domestic demand even as a rise in global uncertainties slows global output. India’s Real GDP growth in 2022-23 is projected at 7 per cent by NSO, MoSPI in its 2nd Advance Estimates (AE), the same as in the 1st AE.”
The ministry further said that macroeconomic stability is likely to receive a further boost in FY23 as the current account deficit is set to narrow from the year-beginning estimates.
“The jump in net service exports over the previous year is a critical development as India increases its market share in both IT and non-IT services, whose demand has been triggered by the pandemic. Imports are also less costly now with the easing of global commodity prices. With a manageable current account deficit and a growth rate highest among the major economies in FY23, the Indian economy has shown a new-found resilience in sailing through the turbulence caused by the pandemic and geopolitical stress,” the ministry said.
The finance ministry added that this will provide a much-needed cushion to India’s external sector at a time when the Fed is likely to raise rates further and ensure that India’s external finances are not a major cause of concern.
The economic review noted that falling international commodity prices and government measures have aided in easing inflationary pressures.
"With WPI inflation declining to a 25-month low, its transmission to CPI inflation is soon expected. Household inflation expectations remained anchored, as seen in the January 2023 round of RBI’s Households' Inflation Expectations Survey," it said.
The inflation trajectory will likely be determined by extreme weather conditions like heatwaves and the possibility of an El Nino year, volatility in international commodity prices, and pass-through of input costs to output prices.
The ministry said, “Forecasts by various international agencies show that inflation in India will moderate in FY24 compared to FY23 and is likely to remain in the range of 5.0-6.0 per cent, with risks evenly balanced.”
“The Russia-Ukraine conflict and tightening of monetary policy have again brought the issue of corporate debt vulnerabilities to the fore. This is after the Covid-19 pandemic had directly impacted the balance sheets of the corporate sector globally, which were already highly leveraged. With back-to-back shocks, the risk of a spillover of the stressed balance sheets of the corporates to the balance sheets of financial institutions has risen,” the ministry said.
However, the report added that India is one of the few countries that have a lower corporate debt as a percentage of the GDP in Q3 of 2022 as compared to the corresponding quarter in 2008.
Apart from the lowering of debt coinciding with the deleveraging phase in the credit cycle, a declining trend observed since mid-2021 is a reflection of a relatively less debt-financed strong recovery of India’s economy, the report said.