India's GDP growth performance surprises market; hopes spur

The provisional estimates of national income 2022-23 and quarterly estimates of GDP for the fourth quarter (January- March) of 2022-23 shows that GDP at constant prices (2012-12) in Q2022-23 is estimated at Rs 43.62 lakh crore, as against Rs 41..12 lakh crore in Q4 2021-22, reflecting a 6.1 per cent growth. GDP at current prices in Q4 2022-23 is estimated at Rs 71.82 lakh crore, as against Rs 65.05 lakh crore in Q4 2021-22 showing a growth of 10.4 per cent. The last quarter of 2022-23 growth is much higher than the estimates made by economists and market experts and comes across as a positive surprise to many. It was believed that due to global slowdown, higher inflation, the geo-political situation, supply chain disturbances, volatility in commodities prices, slow growth in global trade and their consequent impact on domestic macro-economic situation, the last quarter GDP growth was estimated by RBI at 5.1 per cent whereas the current NSO data indicates a GDP growth of 6.1 per cent.

Real GDP or GDP at constant (2011-12) prices in the year 2022-23 is estimated to attain a level of Rs 160.06 lakh crore, as against the first revised estimate of GDP for the year 2021-22 at Rs 149.26 lakh crore. The growth in real GDP during 2022-23 is estimated at 7.2 per cent as compared to 9.1 per cent 2021-23. This full year GDP growth at 7.2 per cent is higher than 6.5 to 7 estimated earlier. Nominal GDP or GDP at current prices in the year 2022-23 is estimated to attain a level of Rs 272.41 lakh crore, as against Rs 234.71 lakh crore in 2021-22. India has kept its mission of achieving $5 trillion economy by 2026/27 and become a developed nation by 2047, when India attains its 100 years of Independence.

EY projects India to become a $ 26 trillion economy by 2047 with six-fold increase in per capita income to $15,000 from the level of GDP per capita $ 2301.418 as on March 31, 2022. It is necessary for India to grow on an average 6.5 to 7 per cent in the next few years in its Amrit Kaal period so that India can become the fastest growing economy and bring lot of opportunities for the world inclusive growth. With its continued focus on world class infrastructure, creating conducive environment for manufacturing hub with progressive schemes like Production Linked Incentive Schemes, Make In India, Start Up India, supported by growth and investment oriented policies and reforms, opportunities arising out of sustainability initiatives, like global solar alliance, alternative energy projects, hydrogen mission, national logistics mission, reduction in logic cost, free trade agreements and enhanced global trade promotion efforts as per the Foreign Trade Policy, a dominant position in services exports and creating public digital infrastructure and more reforms should create a conducive environment to accomplish its dream in Amrit Kaal .

From further analysis of the GDP growth as on 2022-23, it is seen that while agriculture has been continuing to show excellent performance at 4 per cent for 2022-23 as against the 2021-22 level of 3.5 per cent. Industry as a whole is yet to see full recovery and has been at 4.4 per cent as on 2022-23 as against last year’s level of 11.6 per cent. Services has been major contributor at 9.5 per cent growth as at 2022-23 as against at 8.8 as on 2021-22. If monsoon is normal, lower impact of EI- Nino, with expected increase in food grain production, agriculture may show similar performance in 2023-24. There are reports of new investments and project expansion coming in the manufacturing sector with improvements in capacity utilisation. It is expected to recover and show higher performance. Services sector is expected to moderate even though services PMI has shown sharp improvement in recent months.

The RBI has revised its GDP forecast for FY 2024 marginally to 6.5 per cent from 6.4 per cent on the back of higher Rabi crop output, moderating commodities prices and the proposed higher capital expenditure. However, IMF has cut India's GDP growth to 5.9 per cent for FY 2024 from its earlier projection of 6.1 percent. As per Asian Development Bank’s recent estimates, India's economy is to grow by 6.4 in FY2023, which India beat estimation, reached a growth of 7.1 per cent. It has estimated that India's growth will rise to 6.7 per cent in Fy 2024. The World Bank has lowered the growth forecast to 6.3 per cent, a downgrade of 0.7 percentage points since October forecast due to high borrowing costs, slower income growth, causing lower consumption as well as the government tightening fiscal expenditure.

They have also raised concerns at the drop in female labour participation as labour market needs to be more inclusive. It is expected that the GDP growth for the world and advanced and emerging economies are likely to be lower than last year, but India will continue to shine in terms of better results beating the expectations. The government is committed to bring the fiscal deficit to levels below 4.5 % by 2025-26 and from FY 2022 level of 6.7 % for FY 2023 fiscal deficit brought down to 6.4%. It is estimated at 5.9 % for FY 2024. There is a long way in its journey towards fiscal consolidation and hope that tax buoyancy and less borrowing will bring down fiscal deficit to the desired levels and maintain fiscal prudence, which India displayed during Covid-19 as against unsustainable debt level in some countries.

There is pleasant news that India's Inflation has started to moderate and latest CPI eases sharply to 4.7 % in April 2023 coming under the RBI's upper tolerance limit of 6%. RBI expects the headline retail inflation to average 5.3 % in 2023-24. The Indian basket of crude oil as on 01.06.23 is $ 72.39 /bbl as against inflation forecasts assumed by RBI, the price of India's crude oil basket at $95/bbl.

We may expect RBI to continue to pause in the next monetary policy meeting. The market is looking for a favourable monetary policy response to further drive Indian economy.

In its annual report for 2022-23, the RBI as stated “Medium-term prospects have been brightened by the demographic dividend the digital revolution, policy initiatives to transform India into a global manufacturing hub, a resurgence in services sector competitiveness and favourable non-economic positioning that is underway ."

(The author is former Chairman & Managing Director of Indian Overseas Bank)