Eco Survey projects FY24 GDP growth at 6-6.8%, sees investments picking up

Commodity prices will raise total import bill and add to unfavourable developments in current account balance, it says

India is projected to grow at a baseline rate of 6.5 per cent and at a range of 6-6.8 per cent in 2023-24 (FY24), with global macroeconomic slowdown being the key risk factor to the forecast, the Economic Survey 2022-23 said on Tuesday.

“Recovering from pandemic-induced contraction, Russian-Ukraine conflict, and inflation, the Indian economy is staging a broad-based recovery across sectors, positioning to ascend to the pre-pandemic growth path in 2022-23,” said the Survey, authored by Chief Economic Advisor V Anantha Nageswaran and his team.

This is Nageswaran’s first Survey.

The baseline nominal gross domestic product (GDP) growth is forecast at 11 per cent.

The Survey also said that over the medium term (until 2030), India would achieve an average growth rate of around 6.5 per cent, based on the reforms carried out since 2014 so far, and that could be improved to 7-8 per cent if some more structural reforms are carried out.

These reforms include administrative reforms and enforcement of contracts, dismantling licences, inspection and compliance, energy and security transition, and harnessing ‘Nari Shakti’, among others.

“The Survey projects the growth rate to be 6.5 per cent for the next fiscal year, and the range we have projected for the outcomes is between 6 per cent and 6.8 per cent. The range is deliberately asymmetrical,” said Nageswaran at a media briefing after the tabling of the Survey in Parliament.

Nageswaran said that the global economic and geopolitical environment remains rife with uncertainty.

“We have many known unknowns as well as unknown unknowns. And we also don’t know the pace at which the world economy will recover and the impact that may have on inflation,” he said.

“At this point, the headwinds come primarily from global factors. What holds back the growth rate is the fact that our net exports are negative. Geopolitical developments that further disrupt global trade and send commodity prices higher would be primary headwinds to our growth projections,” he said.

Nageswaran said that as long as crude oil prices stay below $100 per barrel, the real GDP growth projections for FY24 will remain undisturbed.

The Survey said that the upside to India’s growth outlook arises from several factors, including limited health and economic fallout for the rest of the world from the current surge in Covid infections in China, continued normalisation of supply chains, recessionary tendencies in major advanced economies triggering a cessation of monetary tightening, return of capital flows to India amidst a stable domestic inflation rate below 6 per cent, and improvement in private sector investment.

The Survey said that growth is expected to be brisk in FY24 due to vigorous credit disbursement. The capital investment cycle is expected to unfold in India, with the strengthening of the balance sheets of the corporate and banking sectors.

“Further support to economic growth will come from the expansion of public digital platforms and path-breaking measures such as PM GatiShakti, the National Logistics Policy, and the production-linked incentive schemes to boost manufacturing output,” it said.

The Survey stated that India’s recovery from the pandemic was relatively quick, and growth in the upcoming year would be supported by solid domestic demand and pick-up in capital investment.

The International Monetary Fund, in its January World Economic Outlook, expects global growth to slow from 3.2 per cent in 2022 to 2.9 per cent in 2023.

A slower growth in economic output, coupled with increased uncertainty, will dampen trade growth. This is seen in the lower forecast for growth in global trade by the World Trade Organization, from 3.5 per cent in 2022 to 1 per cent in 2023, the Survey stated.

For the medium term, the Survey said that as the health and economic shocks of the pandemic and the spike in commodity prices in 2022 wear off, the Indian economy is well placed to grow at its potential in the coming decade, similar to the growth experience of the economy after 2003.

It said that financial and corporate sector balance sheets are in good shape, and there is a willingness to borrow and lend. Hence, it is inevitable that the effects of these reforms will now shine through. A restored credit cycle will rejuvenate the Indian private sector capital expenditure cycle. That alone is adequate to enable India to grow at least 6 per cent per annum in real terms. 

“On top of that, the higher economic efficiency resulting from the public digital infrastructure created over the past six to seven years will also add 30-50 basis points to potential GDP growth. The growth effects of the maturation of India’s public digital infrastructure are insufficiently understood. Formalisation and financial inclusion that it has enabled are too evident to be ignored.”

“That is why we are optimistic that India will achieve an average of 6.5 per cent real GDP growth in the medium term. In addition, if other reforms are pursued in the coming years, India’s potential GDP growth can rise to 7-8 per cent per annum in the medium term,” it said.