Economy to grow at 7.6% in FY23: India Ratings

MUMBAI: India Ratings and Research on Thursday said the country’s economy is likely to grow at 7.6% year-on-year in 2022-23.

The agency said after a gap of two years, the Indian economy will show a meaningful expansion, as the real GDP in 2022-23 is expected to be 9.1% higher than that in 2019-20 (pre-Covid level). “However, the size of the Indian economy in FY23 will be 10.2% lower than the FY23 GDP trend value. A continued weakness in private consumption and investment demand is estimated to contribute 43.4% and 21%, respectively, to this shortfall,” the agency said in a report.

It said if the impact of Omicron on the fourth quarter growth turns out to be greater than its estimate, then there could be some upside to 2022-23 growth originating from the base effect. Earlier this month, the National Statistical Office (NSO) in its first advance estimate said gross domestic product (GDP) is expected to grow at 9.2% in 2021-22. The economy had contracted 7.3% in the previous financial year.

Speaking to reporters, India Ratings’ Principal Economist and Director Public Finance Sunil Kumar Sinha said the government and the RBI are expected to support the growth recovery. He said the government will not be in a hurry to move towards fiscal consolidation, which means there will be a significant amount of fiscal deficit even in the 2022-23 Budget, essentially to support growth. The agency expects the fiscal deficit to come in at 5.8-6% of GDP in 2022-23.

Sinha said as inflation trajectory is on the higher side and economic recovery is still fragile, RBI will resist from raising policy rate in the near future.

The agency expects the current account deficit in FY23 to widen to 2.3% of GDP.

Highlighting the risks to the ongoing recovery, it said NSO’s advance estimate for FY22 shows that private final consumption expenditure (PFCE), grew only 6.9% y-o-y in FY22, despite a low base and sales data of many consumer durables showing robust growth. “This indicates that the consumption demand is still weak and not broad-based. In fact, slowdown in PFCE begun even before Covid hit the Indian economy,” the report said.

Wage growth both in the rural and urban areas is facing significant headwinds and has been declining since mid-2020. More importantly, real (inflation-adjusted) wages are indicating an erosion of household’s purchasing power, it said.

AFTER A GAP OF TWO YEARS, THE ECONOMY WILL SHOW EXPANSION, AS THE REAL GDP IN FY23 IS LIKELY TO BE 9.1% HIGHER