Neelkanth Mishra, member of PM-EAC, optimistic about India's growth, forecasts exceeding 7% in FY24

Neelkanth Mishra, a member of the Prime Minister’s economic advisory council (PM-EAC), has expressed optimism about India's economic growth, suggesting that the country may surpass the revised GDP growth rate estimate of 7 percent for the current fiscal year. Mishra attributes this positive outlook to strong total factor productivity (TFP), driven by robust growth in services.

The Reserve Bank of India (RBI) recently revised the GDP growth rate upward to 7 percent, reflecting the positive impact of increased private capital expenditure on the economy. Mishra highlighted that the growth estimate is based on a 1 percent growth in labor productivity, a 4 percent growth in capital formation, and a 2 percent growth in TFP. He emphasized the strength of aggregate TFP, particularly driven by growth in services like domestic factors and retail trade.

According to Mishra, private capital expenditure has played a significant role in India's economic performance, leading to the need to upgrade the trend growth. He noted that the 7 percent GDP growth estimate considers fiscal tightening, adherence to the fiscal consolidation roadmap, rising interest rates, and tight liquidity conditions. Despite a sharp slowdown in exports, Mishra believes the growth is resilient.

Addressing concerns about fiscal deficit reduction, Mishra emphasized the importance of gradually pacing the reduction rather than opting for drastic consolidation. He cautioned that reducing the fiscal deficit too rapidly could have adverse effects on the economy.

While India is experiencing positive economic momentum, Mishra acknowledged that the country is still behind its pre-pandemic growth estimate roadmap. He highlighted the necessity for additional efforts in labor and capital expenditure to bridge the gap.

In terms of long-term growth prospects, Mishra pointed out that artificial intelligence (AI) could serve as a growth booster by enhancing productivity. He indicated that AI adoption would be supportive of achieving higher growth rates.