India Ratings and Research on Thursday said the country’s economy is likely to grow by 7.6% in 2022-23.
The agency said the economy will show a meaningful expansion, after a gap of two years, 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,” India Ratings said. “A continued weakness in private consumption and investment demand is estimated to contribute 43.4% and 21%, respectively, to this shortfall,” it added.
The agency said if the impact of Omicron on fourth quarter growth turns out to be greater than its estimate, then there could be some upside to FY23 growth originating from the base effect.
Earlier this month, the 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 FY21.
India Ratings’ Principal Economist and Director Public Finance Sunil Kumar Sinha said the government and 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 FY23 Budget, essentially to support growth.
The agency expects the fiscal deficit to come in at 5.8-6% of GDP in 2022-23.
Mr. Sinha said as inflation trajectory is on the higher side and economic recovery is still fragile, RBI will desist from raising the policy rate in the near future.
Highlighting the risks to the ongoing recovery, the agency said NSO’s advance estimate for FY22 shows that private final consumption expenditure (PFCE), grew only 6.9% 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, the slowdown in PFCE had begun even before the COVID-19 pandemic had hit the Indian economy,” the agency said.
The RBI’s Consumer Confidence Survey shows that consumer sentiment, which had collapsed May 2019 onwards, have not yet recovered to pre-COVID levels.
‘Structural weakness’
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 households’ purchasing power, it said.
Another factor that has impaired the consumption demand lately is an abrupt rise in the health expenditure of households.
These trends may be cyclical, but the picture even at the structural level is not healthy for households.
“Households savings have declined and their leverage has gone up significantly since FY12, suggesting that a large part of the consumption demand in the past has been financed through either reduced savings and a higher debt or both,” India Ratings noted.
