India to grow at 7 pc in FY23, lose fastest growing economy tag

New Delhi: Hit by weakening demand, the Indian economy is expected to grow at a slower 7 per cent rate in the current fiscal ending March 2023, setting the stage for the country losing the fastest-growing major economy tag. The 7 per cent expansion projected in the first official estimate released by the Statistics Ministry compares with 8.7 per cent gross domestic product (GDP) growth in 2021-22.
The projections are much lower than government’s earlier forecast of 8-8.5 per cent growth but above the Reserve Bank’s projection of 6.8 per cent. If the forecast comes true, India’s GDP growth will be lower than Saudi Arabia’s expected 7.6 per cent expansion.In fact, India’s GDP growth in the July-September quarter at 6.3 per cent was lower than the 8.7 per cent of Saudi Arabia.
The first advance GDP estimates, which are used to work out allocations and other fiscal projections for the next Budget due on February 1, proved to be more optimistic than the actual growth in three out of the last four years. The projections suggest that despite the global headwinds and continued geopolitical uncertainty caused by the Russia-Ukraine conflict, the recovery is on track though there are pressure points. Inflation has been sticky despite a 225 basis points increase in interest rates since last May, which is likely to moderate demand.“We believe that buoyant albeit mixed domestic consumption should help to stave off some of the pain arising from weak exports during this period,” said Aditi Nayar, Chief Economist, ICRA Ltd.
Sunil Sinha, Senior Director and Principal Economist, India Ratings & Research, said the road ahead is not going to be easy so long as private final consumption expenditure (PFCE) does not recover fully and become broad-based.“The household sector, which accounts for 44-45 per cent of the GVA, saw their nominal wage growth decline to 5.7 per cent during FY17-FY21 from 8.2 per cent during FY12-FY16. In fact, the real wage growth became nearly flat or even turned negative in some months of FY23 due to high inflation.
“Since much of the growth in consumption demand is driven by the wage growth of the household sector, a recovery in their wage growth is an imperative for a sustainable economic recovery,” he noted.The first advance estimates for 2022-23 factored in discrepancies of Rs 4,06,943 crore, which is nearly double the amount of Rs 2,16,842 crore as per provisional estimates of GDP growth for 2021-22 released on May 31, 2022. The discrepancies were Rs 2,38,638 crore in 2020-21.