BJP's Economic Gamble

As if Union Minister Piyush Goyal's statement of a USD 30 trillion economy was not enough, Home Minister Amit Shah has stated that with 8.2 per cent growth, India is at present one of the fastest-growing economies in the world. 

The statement by both the leaders has generated sharp reactions from experts and critics. Economists have said that Piyush Goyal's dream of a USD 30 trillion economy in 30 years is possible, however, critics called it a political gimmick. 

Talking about Amit Shah's remark, India's economy did witness a growth of 8.7 per cent in the last fiscal (2021-22) against a 6.6 per cent contraction in the previous year.

"With 8.2 per cent growth, India is at present one of the fastest-growing economies in the world and the coal and mines sector of the country is contributing considerably to the present economic growth," said Shah. 

Union Minister Piyush Goyal said that the Indian economy is expected to reach USD 30 trillion in the coming 30 years has raised several eyebrows about this humongous target.

"If India grows at 8 per cent every year on a compounded annual growth basis, the economy will double in about nine years. Presently, it is about USD 3.2 trillion and nine years from today, it will be about USD 6.5 trillion," an ambitious Goyal said. 

Also Read: Decoding Piyush Goyal's Dream Of $30 Tn Economy

However, eminent economists have said that the Indian economy can grow by 7 per cent to 7.8 per cent this fiscal on the back of better agriculture production and a revitalised rural economy amid global headwinds mainly due to the ongoing Russia-Ukraine war. 

Amid the Modi government's claim of sharp economic recovery, the Finance Ministry also said that India’s economy is likely to witness slowing growth, however, higher than the other emerging players.   

Recently, the Reserve Bank of India (RBI) hiked the repo rate by 50 basis points which took the repo rate to 4.9 per cent.

As India faces high inflation, consequences of geopolitical crisis and supply chain disturbance, the World Bank has slashed India's economic growth forecast for the current fiscal to 7.5 per cent.

Also, the Reserve Bank of India retained its GDP growth forecast at 7.2 per cent for the current fiscal along with a warning against negative spillovers of geopolitical crisis and a slowdown in the global economy.

To know the current status of the Indian economy, BW Businessworld consulted experts to know more about these numbers. 

"India is the fastest-growing economy among the world’s 20 largest economies (G20), as it has been in 4 of the past 7 years — the only 4 years in the past 75 that India achieved that distinction. So, yes, the economy is recovering, with exports in the lead — up 44 per cent YoY in FY22, easily the fastest growth pace of any Asian economy. Nominal GDP grew 19.5 per cent in FY22, and real GDP 8.7 per cent — healthy growth despite the disruptions from two waves of Covid-19," said Prasenjit K Basu, Chief Economist, ICICI Securities.

Indranil Pan - Chief Economist, YES Bank also mentioned that the services sector is doing better no doubt, as is indicated by an upward march in the PMI for the services sector. Some sectors such as travel and tourism within the services are doing well, mostly a result of “revenge spending”. 

"On the other hand, the uptick is not being shared by the manufacturing sector. The PMI for the manufacturing sector in June was reported at 53.0. Sure, this does represent an expansionary zone, however, the number is lower than the May reading of 54.4. This implies some intrinsic weakness for the manufacturing sector, even as most of the recent government policies (such as the lower corporate taxes, PLI scheme etc) are directed towards the manufacturing sector," Pan said. 

In June, the central bank retained the real gross domestic product (GDP) growth projection for 2022-23 to 7.2 per cent, 3 with Q1 at 16.2 per cent; Q2 at 6.2 per cent; Q3 at 4.1 per cent; and Q4 at 4.0 per cent. 

The capacity utilisation improved to 74.5 per cent in the March 2022 quarter as compared to 72.4 per cent in Q3 and it is likely to grow further, said RBI Governor Shaktikanta Das while addressing the media. 

"Analysing World Bank data shows India’s economy faltering. Annual growth over 2020-22 is 0.8%. This is less than many nations including China/Vietnam/B’desh. It hits harder since the top 1% is doing well. India has many strengths. This is a result of getting priorities wrong," Kaushik Basu, Former Chief Economist, World Bank wrote on Twitter.

Also Read: Inflation And Falling Currency: The Saga Continues

Amid the recovery in domestic economic activity, the central bank said that rural consumption should benefit from the likely normal south-west monsoon and the expected improvement in agricultural prospects. 

A rebound in contact-intensive services is likely to bolster urban consumption, going forward. Investment activity is expected to be supported by improving capacity utilisation, the government’s capex push, and strengthening bank credit, a statement from RBI read.

Meanwhile, Pradeep Multani, President, PHD Chamber of Commerce and Industry mentioned that the FY 2021-22 GDP data reflects that the country has crossed the pre-pandemic GDP level (at constant prices), and registered a growth rate of 1.5 per cent over for FY 2019-20. 

"The GDP growth in Q4 FY 2022 was significantly higher than the corresponding period of the previous year. The recovery is also evident from the performance of various key economic and business indicators during Q4 FY 2022 and the first two months of FY 2023. This exemplary recovery in economic activity, as compared to the lows caused by pandemic Covid-19, has been possible on the back of meaningful reforms undertaken by the government and RBI during the last 2 years," Multani added. 

Also Read: GST On Pre-Packed Items: A Curse For Indian Middle Class

YES Bank's Pan said that at the heart of the problem is the fact that private consumption expenditure remains weak and is likely to be once again hit by high inflation and a rising interest rate. Exports are likely to underperform with expectations of a global slowdown.

"The Indian economy is recovering gradually. Contact-based services which had been lagging due to Covid-19 have been recovering over the past few months. Indicators such as PMI, GST collections, air passenger traffic, etc. have been indicating that recovery has been gaining ground," Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities. 

Experts noted that domestic as well as external demand is expected to remain weak in the months ahead. Private investments may recover to an extent as the capacity utilization has almost hit the 75 per cent mark, but could be derailed a bit on account of interest rates rising. 

"Overall, the only source of income that the economy can get is through government’s capital expenditures and the budget status does not afford any luxury to the government to increase its capital expenditure at a very fast pace. For FY23, we anticipate growth to be at 7.0 per cent but with a downward bias," Pan added. 

Talking about the elephant in the room, the retail consumer price index (CPI) in India eased to 7.01 per cent in June from 7.04 per cent in May due to a favourable base effect, as per data released by the Ministry of Statistics and Programme Implementation.

The data showed that the number is above the Reserve Bank of India's (RBI's) tolerance limit for the sixth consecutive month as lower cooking oil prices and fuel offset higher services and food costs. 

The retail inflation rate eased to 7.04 per cent in May from 7.79 per cent in April. 

Also Read: India Is Facing Imported Inflation: Experts

The central bank on June 8 hiked the inflation estimate by 100 basis points to 6.7 per cent in 2022-23 from 5.7 per cent in April with Q1 at 7.5 per cent; Q2 at 7.4 per cent; Q3 at 6.2 per cent; and Q4 at 5.8 per cent.

"We have been expecting inflation to remain around the 7 per cent handle for the rest of 1HFY23. Food items continue to see an upside in price momentum, in line with the seasonal trends. Core inflation was flat at 6.2 per cent with price momentum softening slightly from last month," said Rakshit. 

Meanwhile, experts have estimated that inflation should gradually decline in 2HFY23. The repo rate hike of 35 bps in the August policy and RBI should stay on course to reach 5.75 per cent by end of CY2022.