In the first half of 2022-23 Indian GDP has grown at the rate of 9.7% which is indeed a remarkable achievement among major economies. Indian growth rate, year-on-year, was 13.5% in quarter one (April to June) followed by 6.3% in quarter two (July to September). This high growth in the first half was predicated by a lower base figure in 2021-22 for the same period. However, without any prevarication it can be suggested that even if the real GDP for the second half is between 4.5 to 5% then the overall GDP growth in real terms could be around 7%. There are a few noticeable features of the second quarter growth real consumption expenditure which accounts for about 59% of GDP increased by 9.7% and gross fixed capital formation which is the propeller of investment grew by 10.3%. Both the indicators suggest the economy is moving in the right direction. However, one needs to add that public consumption expenditure has come down, possibly the Government needs to focus on it specially when the tax collection has been buoyant. The key area of concern is net exports which is basically exports of goods and services minus imports. This problem may continue well into 2023-24 due to global headwinds. Consequently, the GDP growth rate may come down albeit marginally in 2023-24. Another aspect that needs to be borne in mind is during 2022-23 post Ukraine war developments, energy and commodity prices have gone up; this has compelled RBI to have a tighter monetary policy and a higher rate regime, both have an impact on lowering the growth trajectory. However, with CPI inflation, particularly food inflation showing a decline, RBI could be less aggressive in terms of rate escalation. Further, given the improvement in tax collection both direct and indirect including GST, the fiscal deficit could be contained within 6.4% of GDP. Even the Indian currency depreciation could be within expected limits as capital inflows and remittances would help in mitigating the adverse impact of higher trade deficit. On the whole we do not expect any major macro economic instability arising in the coming quarters.

Coming back to global headwinds, the international institutions don’t seem to be very hopeful about 2023. It is unlikely to be better than 2022, in fact it could be worse. According to IMF “Global economic activity is experiencing a broad based and sharper than expected slowdown.” Global growth could well be 2.7% the weakest since 2001. The economic scenario of the advanced countries and that of China are of great importance to emerging economies like India, Indonesia, Vietnam, etc. In many of the advanced economies like USA, EU, UK and Japan, years of lax monetary and fiscal policies coupled with low or even negative interest rates have led to enormous debt build up. Debt, private and Government put together has become three to four times that of GDP depending on the country one selects.

The Ukraine conflict along with supply chain disruptions have led to a sharp escalation in energy, food and commodity prices. These developments have forced Central banks to reverse the monetary easing process and raise interest rates. As debt servicing costs are going up a debt related crisis is almost on the anvil. The problem has got further exacerbated by supply chain bottlenecks leading to lower output growth along with higher inflation. Many of the advanced economies particularly EU and UK are facing near stagflationary situation with high prices and very low GDP growth. An issue which has been singled by most of the international economic institutions.

In this global context India cannot expect a substantial growth impetus from exports of goods and services. Further we have to make a detailed calculation of net benefit to India if we enter into a FTA now.

For 2023, India’s basic focus has to be on domestic private consumption growth and investment growth. In this context the 2023 February budget assumes a very important dimension. How it can enhance private investment while encouraging private consumption are two issues which need to be tackled. There are indications that private investments have started picking up, these are apparent on account of rise in non food credit, new project announcements, new investments in PLI linked industries, new investment in infrastructure and renewables.

There is a conundrum here, new investment is taking place in emerging areas like defence environment related industries and communication linked industries. The traditional method of looking at capacity utilisation data as an indicator of future industrial investments may not be helpful when the focus of growth is on new industries. Further, private investment in this country is often tethered to Government’s capital expenditure, 2022-23 is no exception. To keep the economy firmly on the growth path hopefully the government will continue to spend on infrastructure which includes both physical and soft infrastructure like health and education. Unlike earlier years tax revenue generation till date indicates that in 2022-23 the economy would handsomely exceed the target. However, the pace of non-tax revenue generation through disinvestment is still tardy. The overall fiscal deficit target of 6.4% can be met without much ado.

Till recently most of the research institutions both international and Indian were busy reducing their- India growth rate projections for 2022-23 and 2023-24. The second quarter GDP numbers along with the progress of high frequency indicators have forced them to think otherwise. World Bank has already indicated an upward revision for 2022-23 at 6.9% and for 2023-24 at 6.6%. To be candid the projected growth rate at best can provide a base line target which the economy must reach after negotiating global headwinds and spillovers. The questions one should ask are: What are the policy reforms needed to take advantage of China plus one spillover effect? What type of infrastructural investment would be required to bring down logistics cost? How can we work on transition of labour from low productivity units to high productivity units? Can we create a digital market which would link thousands of MSMEs and tiny units with organised players’ supply chain and make growth more inclusive, while protecting employment?

Siddhartha Roy is the former Economic Advisor of the Tata Group. Currently he is the CEO of SR Associates an Economic Advisory and Strategic Consultancy enterprise.

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