The economy has carried the momentum from FY23 into the current fiscal year, according to the Annual Economic Review for 2022–23, which was released by the finance ministry on Thursday. This suggests that India is better positioned than before to sustain its growth.
However, the report issued a warning that variables that could slow down growth include an increase in geopolitical tension, increased volatility in global financial systems, a rapid price correction in global stock markets, a significant El Nio impact, and weak trade activity and FDI inflows.
“Should these developments deepen and dampen growth in the subsequent quarters, the external sector may challenge India’s growth outlook for FY24,” the finance ministry warned.
A robust performance in the last quarter of FY23 (January through March), according to the annual review that replaced the monthly economic report, increased GDP growth for the entire year to 7.2%, exceeding the 7.0% estimate in February.
The growth momentum continues well into the current year thanks to this upward revision to the growth estimate. As they increase their growth projections for FY24, some forecasting organisations also express optimism, it was underlined.
The study, however, made no new growth projections for FY24.
Macroeconomic forecasting organisations range from 6% to 6%.5% in their growth projections for the current fiscal year.
The introduction of the Carbon Border Adjustment Mechanism (CBAM) by the European Union, the ongoing ambiguity surrounding the Russia-Ukraine conflict, and polarisation risks resulting from the current geopolitical situation, which is reflected in the potential adoption of trade-restrictive measures, are among the imminent downside risks to India’s exports, according to the report.
Further, according to IMF studies, political distance may have a greater impact on foreign direct investment flows than geographic distance.
According to the finance ministry, supply-side infrastructure expenditures increase the likelihood that India will experience sustained economic growth for a longer period of time than it has in the past several decades.
“However, now is not the time to bask in success or take a chance on undermining the carefully and painstakingly attained economic stability. The rising tide will lift all boats if we have patience, as it has already started to do.
According to the report, the economy has nearly reached the quarterly output it would have normally produced in the absence of the pandemic thanks to FY23.
“Post pandemic quarterly trajectories of investment and consumption have already crossed their pre pandemic paths.”
High-frequency indicators provide a positive picture of the situation of the economy, according to the report.
With stronger growth in auto sales, fuel consumption, and UPI transactions, urban demand conditions are still strong.With strong growth in sales of two and three wheelers, rural demand is likewise on the road to recovery.
“While the GST collections and Purchasing Managers’ Index (PMI) for the manufacturing and services sector continue to expand, a surge in services exports and increase in remittances has helped narrow the current account deficit towards the end of FY23,” it continued.
The analysis suggested that strong balance sheets and technological developments might result in improved lending decisions, enabling India’s financial cycle to continue for longer periods without running into the problem of bad loans.
Macroeconomic management has been excellent, notwithstanding the recent extraordinary global challenges that have added to the balance sheet issues in the Indian banking and non-financial business sectors, according to Finmin.
