Centre sees economic growth in FY23 at 6.5%
The Union government expects India’s growth to slow down to 6.5% in the current fiscal amid external shocks and monetary policy tightening. This is lower than RBI’s latest projection of 7% GDP growth. In fact, the government expects growth to slow down further in 2023-24 amid global recession fears, making budget making exercise for FY24 even more challenging for policymakers. Finance minister Nirmala Sitharaman will have to balance growth stimulating measures with steps to further the fiscal consolidation roadmap in the upcoming budget, expected to be announced on February 1.
The government expects India’s economic growth to slow to 6.5% in the current fiscal year because of external shocks and monetary policy tightening, a government official said.
The pace is slower than the Reserve Bank of India’s latest projection of 7% GDP growth. In fact, the Centre expects growth to slow down further in 2023-24 amid global recession fears, making budget-making for FY24 even more challenging for policymakers.
Slowing growth may prompt finance minister Nirmala Sitharaman to balance laying a road map for fiscal consolidation with growth-stimulating measures in the coming budget, expected to be announced on 1 February.
It will be this government’s last full budget before the 2024 general election.
“We are expecting real GDP growth for FY23 at 6.5%, given the challenging global economic environment. Nominal GDP will be close to 14%, with retail inflation hovering around 7% and wholesale inflation at 10%... However, the big challenge is not growth or inflation, it is the current account deficit, and trade deficit in particular,” the official said. “Growth will definitely slow next year compared to this year, but it will be better than most countries,” he said.
Queries emailed to a spokesperson for the finance ministry on Thursday morning remained unanswered till press time.
The national statistical office will release the second quarter GDP numbers on 30 November. The GDP expanded at a slowerthan-expected 13.5% in the first quarter, and most economists have pegged the second quarter numbers at close to 6.5%.
Moody’s Analytics, in its latest APAC Outlook on Thursday, projected that India is headed for slower growth in 2023, in line with its long-term potential. It cautioned that if inflation persists, the Reserve Bank of India (RBI) will increase the repo rate above 6%, causing GDP to falter.
RBI, in its 30 September policy meeting, lowered the GDP growth forecast to 7% from the 7.2% estimated earlier.
It had hiked the repo rate for the fourth straight time by 50 basis points, taking the policy rate to a three-year high of 5.9%.
The Centre’s forecast is in line with the World Bank’s latest projection, which sharply cut growth forecast for FY23 by 100 basis points to 6.5% last month, attributing it to spillovers from the Russia-Ukraine war and the global monetary policy tightening. The International Monetary Fund also cut India’s growth forecast for this fiscal to 6.8% last month from its earlier projection of 7.4%.
The higher-than-expected nominal GDP will, however, help the Centre achieve the fiscal deficit ratio target of 6.4% of GDP.
In the monthly economic review on Thursday, the finance ministry cautioned a rapid deterioration in global growth prospects, coupled with high inflation and worsening financial conditions, has raised fears of an impending global recession.