Virendra Pandit
New Delhi: Noting that the Indian economy grew by 7.2 percent in 2022-23, especially in its last quarter (January-March 2023), the Finance Ministry on Thursday said the country will continue to register sustained growth in a more durable way than before—but also cautioned about the possible headwinds that could pose major challenges, if overlooked.
“This upside to the growth estimate takes the growth momentum deep into the current year,” said the Annual Economic Review, prepared by the Economic Affairs Department of the Union Finance Ministry.
Several forecasting agencies share similar optimism as they revise their growth estimates for FY24 upwards, it said.
For example, Fitch Ratings raised its forecast for Indian economic growth from its earlier estimate of 6 percent to 6.3 percent for the current fiscal year.
Likewise, S&P Global Ratings retained India’s economic growth for FY24 at 6 percent, pegging the country’s GDP at 6.9 percent in FY25.
In a recent report, the Reserve Bank of India (RBI) also projected growth at 6.5 percent for FY24.
Noting the cues from various high-frequency economic indicators like Manufacturing PMI at 57.8, Services PMI at 58.5, and GST collection at Rs. 1.61 lakh crore, the Finance Ministry report said, “The Indian economy has carried the momentum from FY23 into the current fiscal year.”
On the global front, the uptick in economic activity during Q1FY24 has continued in the second quarter as well, as evident in the expansion of the global Composite PMI.
The report noted that the strength of domestic demand has fuelled the growth.
“FY23 has brought the economy to a touching distance of the quarterly output it would have otherwise achieved in the absence of the pandemic. Post-pandemic quarterly trajectories of consumption and investment have already crossed their pre-pandemic paths,” it said.
Despite weak global demand and low net exports, the report said, the pre-and post-pandemic trajectories of real GDP will converge once the external demand picks up pace.
It also listed some of the headwinds like escalation of geopolitical stress, enhanced volatility in global financial systems, sharp price correction in global stock markets, a high magnitude of El-Nino impact, modest trade activity, and FDI inflows because of frail global demand.
“Should these developments deepen and dampen growth in the subsequent quarters, the external sector may challenge India’s growth outlook for FY24,” it said.
India’s macroeconomic management has been stellar despite unprecedented global challenges in the last few years and balance sheet troubles in the country’s banking and non-financial corporate sectors. Investments in supply-side infrastructure will help in achieving sustained economic growth, it added.
“Strong balance sheets and digital advancements could lead to better credit decisions allowing India’s financial cycle to sustain for longer periods before encountering the challenge of bad debts. Thus, India appears poised to sustain its growth in a more durable way than before. Nonetheless, it is no time to rest on laurels nor risk diluting the painstakingly and consciously achieved economic stability. If we are patient, the rising tide will lift all boats as it has begun to,” the report added.