Indian economy set for 8% growth in FY23: SBI

India's GDP growth for FY23 is pegged at eight per cent. SBI GDP forecast at eight per cent, higher than RBI and Government estimates at 7.8 per cent. However, it will depend on a host of factors. Globally, recovery across geographies seems to be taking divergent pathways, with a downward spiral in select powerhouses as the average real GDP y-o-y growth in Q4 for 28 economies at 4.5 per cent, though same as it was in Q3, saw GDP growth for certain major economies witnessing deceleration in Q4.

China's economy grew at the slowest pace in 1-1/2 years (@4 per cent) in Q4, dragged by weaker demand due to property market meltdowns, curbs on debt and stricter Covid-19 measures. UK's GDP growth decelerated from 7.0 per cent in Q3 to 6.5 per cent in Q4.

A Kotak Economy study estimates the trade deficit in FY22E at $198 billion (against $102 billion in FY2021) and at $220 billion in FY23E.

It pencils in invisibles at $142 billion leading to CAD of $56.4 billion (1.8 per cent of GDP) in FY22E. In fact, for FY23E, the report estimates CAD at $75.5 billion (2.2 per cent of GDP against earlier estimate of 1.7 per cent mainly because of revised crude price assumptions) and steady Invisibles' net receipts. We note that for every $10/bbl increase in average crude price, CAD increases by around $17 billion (0.5 per cent of GDP).

Analysts have reduced our FPI flows assumption by $25 billion assuming bond index inclusion does not happen in FY23E. This provides a BOP of $(-)18.5 billion in our base case. If crude prices were to average at $90/bbl, the BOP deficit is likely to widen to around $(-)36 billion.

With a modest 6.0 per cent growth in revenue receipts and Rs 0.65 trillion disinvestment target, tepid 0.9 per cent rise in revenue expenditure and robust 24.5 per cent expansion in capital spending, the Government of India has budgeted for a widening in its absolute fiscal deficit to Rs 16.6 trillion in FY23 BE from Rs 15.9 trillion in FY22 RE.

Within the fiscal constraints, the GoI chose to undertake a modest fiscal consolidation of 0.5 per cent of GDP, says an Icra study, albeit to a higher than expected 6.4 per cent of GDP in FY2023, while allocating a considerable Rs 7.5 trillion for growth-supportive capex.

An early implementation of the enthusing 24.5 per cent expansion in capital spending to a substantial Rs 7.5 trillion can trigger a durable economic growth momentum, with the potential to augment job creation, prop up domestic consumption, and hasten capacity expansion by the private sector.

The impact of higher GoI capex will be complemented by the interest free bonds of Rs 1 trillion to the States that will help them prioritise capex even as they traverse the challenges posed by end of GST compensation.