What Story Does Economic Survey 2022-23 Tell Us About India's Growth?

A day before the Union Budget 2023-24, Union Finance Minister Nirmala Sitharaman tabled the Economic Survey 2022-23 in Parliament which revealed several aspects of the Indian economy— which as per the Modi regime is growing, however, the International Monetary Fund (IMF) said that India's growth is set to decline from 6.8 per cent in 2022 to 6.1 per cent in 2023.

Though the country will remain the fastest-growing large economy in 2023 and 2024, the IMF said. Interestingly, the Economic Survey stated that India is likely to witness gross and domestic product (GDP) growth of 6.0 per cent to 6.8 per cent in 2023-24.

Lakshmi Iyer, CEO- Investment Advisory, Kotak Investment Advisors, said, “The economic survey has projected FY 2024 growth at 6-6.8 per cent. This seems a tad stretched given the fact that there is a global slowdown, specifically in global exports. It also comes at a time when domestic demand is initially slowing and we need to be fiscally prudent, particularly after nearly three years of the fiscal breach (globally as well) due to the pandemic phase.

The survey projected a baseline GDP growth of 6.5 per cent in real terms in FY24. Furthermore, the economy is expected to grow by 7 per cent in the fiscal year ending March 2023. However, growth is expected to be brisk in FY24 as a vigorous credit disbursal and capital investment cycle is likely to unfold in India. 

Sanjeev Krishan, Chairperson, PwC India said, "Economic Survey 2023 presents an optimistic growth projection of 6.5 per cent as a baseline banking on the lagged effect of reforms undertaken over the last 6 years paying off as the drags on the economy from the pandemic, high commodity prices and risks of a global slowdown wear off. The strong balance sheets of banks and corporates are rightly assumed to give a private capex push in addition to the government capex push if the assumptions on the external and demand fronts are realised."

In recent times, the entire world has seen the devastating shocks of Covid-19, the Russian-Ukraine conflict and the rate hikes by Central Banks across economies led by the Federal Reserve to curb inflation, leading to an appreciation of the US dollar and the widening of the current account deficits (CAD) in net importing economies. 

Rumki Majumdar, Economist, Deloitte India said, "The global slowdown has already been factored into investment decisions. India should now prepare to bounce back when the global economy recovers. Government must pursue policies to cushion the economy to reduce the vagaries of the global business cycle and focus to a greater degree on building infrastructure, creating an industrial base, and encouraging new business formation."

On the external front, the sector displaying a position of strength in spite of global headwinds. During FY23 (till December 2022) India’s exports displayed resilience on the back of record levels of exports in FY22. India achieved an all-time high annual merchandise export of USD 422 billion in FY22. Merchandise export was USD 332 billion over April-December 2022 against USD 305 billion during the period April-December 2021. 

"Significant strides in exports were registered in drugs and pharmaceuticals, electronic goods and organic and inorganic chemicals sector in FY22," the survey mentioned. India maintained its dominance in the world services trade in FY22 as it stood at USD 254.5 billion in FY22, a growth of 23.5 per cent over FY21 and a growth of 32.7 per cent in April-September 2022 over the same period of the previous year.  

"The combined value of goods and services export in April-December 2022 is estimated to be USD 568.6 billion, showing a growth of 16 per cent compared to April-December 2021," it added. Notably, the Economic Survey mentioned that National Logistics Policy (NLP) would ease the domestic frictions to encourage Indian exports by reducing the cost of internal logistics. 

It also stated that the latest free trade agreements, such as those with UAE and Australia, would address the external frictions by creating opportunities for exports at concessional tariffs and non-tariff barriers. Thus, the whole ecosystem would evolve in an export-friendly manner over time.

"If India wants to be the next manufacturing hub for the world and improve its exports share in global trade, it has to move up the global value chain and address the quality gap faced with the best in class among its peers, while ensuring environmental sustainability. This would require manufacturers to leapfrog to newer technologies and transition to a new and exacting definition of competition, both of which will have implications on job creation, especially for the unskilled," stated Majumdar. 

According to Survey, India’s economic growth in FY23 has been principally led by private consumption and capital formation and they have helped generate employment as seen in the declining urban unemployment rate and in the faster net registration in employee provident fund. 

On private investments, experts noted that it is gathering momentum in certain industry pockets. Going forward, investment growth could be because of adaptive expectations— expectations for the future influenced by recent experiences. 

"High inflation for a prolonged period and rapidly rising interest rates could lead businesses to believe that this may continue in the future as well. Amidst impending global slowdown, it is important to anchor such expectations so that they don’t weigh on private investment decisions. That signifies the urgency of a successful tightrope walking amongst the policymakers and authorities," stated Majumdar. 

Moreover, the world's second-largest vaccination drive involving more than 2 billion doses also served to lift consumer sentiments that may prolong the rebound in consumption. Still, private capex soon needs to take up the leadership role to put job creation on a fast track.

Interestingly, the survey noted that the Indian economy appears to have moved on after its encounter with the pandemic, staging a full recovery in FY22 ahead of many nations and positioning itself to ascend to the pre-pandemic growth path in FY23. 

Yet in the current year, India has also faced the challenge of reining in inflation that the European strife accentuated. Measures taken by the government and RBI, along with the easing of global commodity prices, have finally managed to bring retail inflation below the RBI upper tolerance target in November 2022.

It, however, cautions that the challenge of the depreciating rupee, although better performing than most other currencies, persists with the likelihood of further increases in policy rates by the US Fed.