India’s Chief Economic Adviser, V Anantha Nageswaran, expressed optimism about India’s economic growth following higher-than-expected GDP numbers in the fourth quarter of 2022-23. He suggested that India’s economic growth may surpass the initial estimate of 6.5% for the current fiscal year, indicating another year of solid economic performance. The real GDP growth for 2022-23 exceeded projections by various international agencies, highlighting the strong resilience of the Indian economy. Notably, India’s economy grew by 6.1% in the January-March quarter, contributing to an annual growth rate of 7.2%, driven by improved performance in sectors such as agriculture, manufacturing, mining, and construction.
Nageswaran stated that the risks to the projected 6.5% GDP growth are now more evenly balanced. High-frequency indicators for industry, services, the external sector, fiscal metrics, and credit growth all point to sustained momentum in the economy, leading to positive growth prospects. However, external factors such as geopolitical tensions, oil production, and potential monetary tightening in developed countries pose downside risks, including the possibility of financial stress.
The Chief Economic Adviser also highlighted the positive trend of private sector capital formation, supported by the March financial data of the corporate sector. Gross Fixed Capital Formation (GFCF) played a significant role in driving growth in Q4 of 2022-23, reaching a 10-year high share of 35.3% in GDP. Public sector investment has played a role in crowding-in private sector investment, and Nageswaran anticipated that the private sector would continue expanding its investment plans, particularly as capacity utilization in sectors like steel and cement surpasses 75%.
Nageswaran emphasized the importance of expanding public digital platforms, enhancing last-mile connectivity, and implementing logistics reforms. These measures, combined with sustained infrastructure investment that has tripled through public capital expenditure (capex) spending, provide crucial buffers against external risks.
The Reserve Bank of India’s Governor, Shaktikanta Das, also projected a growth rate higher than the advance estimate of 7% for 2022-23. The National Statistical Office’s second advance estimate in February predicted a growth rate of 7% for the fiscal year, compared to 8.7% in the previous fiscal year.
Nageswaran noted that an increase in the Minimum Support Price (MSP) for major crops and a rise in the wage rate of the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) would improve the financial security of rural households and boost rural demand. He also anticipated stronger prospects in the agriculture sector, which would benefit rural consumption.
Regarding inflation, Nageswaran stated that it would trend towards 4% due to subdued commodity prices and good crop production. He expressed confidence that the consumer price index inflation rate would move closer to the Reserve Bank of India’s midpoint target of 4% in the current fiscal year. Retail inflation has already declined from a peak of 7.8% in April 2022 to an 18-month low of 4.7% in April 2023, driven by reductions in food and core inflation.
Nageswaran concluded by stating that unseasonal rains are unlikely to impact the sowing prospects of the Kharif crop, further supporting the positive outlook for the Indian economy.
