Economic Survey 2022–2023: Talk to banks about budget discipline and more capital spending to drive growth.
The Economic Survey for 2022-23, which was presented to Parliament on Tuesday, said that the economy will likely grow between 6% and 8% in 2023-24, with a baseline real GDP growth rate of 6%. This will be due to a rise in private consumption, higher capital spending, a strengthening of corporate balance sheets, and nearly universal vaccination coverage, which will allow spending on contact-based services.
In the Economic Survey 2022-23, which was written by Chief Economic Advisor V Anantha Nageswaran, one of the most important Budget indicators is the likelihood that the government will meet its fiscal deficit target for this year (at 6.4% of GDP) and keep a modest target of less than 6% for 2023-24. The Survey has put enough attention on fiscal consolidation, which it says is important for keeping long-term interest rates low.
The other thing to learn from the Survey is that the government is likely to keep spending more on capital projects, which will discourage private investment but is important for growth.
India is thought to have the fastest-growing economy in the world, but the baseline estimate of 6.5% growth is higher than the 6.1% growth that the International Monetary Fund (IMF) predicted for FY24 in its World Economic Outlook update, which came out on Tuesday. Some analysts said that the Survey’s prediction of 6.5% growth for the next financial year seems too good to be true, and that it could lead to a government budget slip.
For the current financial year, i.e., 2022–2023, the Survey predicts a growth rate of 7%, which is a bit higher than the Reserve Bank of India’s estimate of 6.8% in its monetary policy from December 2022.
Anantha Nageswaran said at a press conference after the Survey was released that the economy has recovered from the effects of the pandemic and is expected to grow by 6.5-7.0% for the rest of the decade. “I’m optimistic that in the next decade, the rest of the decade, the potential GDP growth, without taking export potential into account, because the world economy is still very uncertain, would be around 6.5-7 percent, not between 6 and 6.5 percent,” he said.
He said that the global slowdown had a couple of “silver linings” for India: lower oil prices and a better current account deficit than what is expected now. He said that companies are more likely to invest in capital expenditures because their balance sheets are getting stronger, public sector banks are getting more money, and credit growth to the industry is going up. Since January 2022, credit growth for micro, small, and medium-sized businesses (MSMEs) has increased by 30%. But uncertainty about commodity prices and changes in the price of crude oil are big problems. The CEA said that unless there are headwinds, inflation is likely to be “well behaved” over the next year.
The Survey has called for “completely” dismantling the LIC (licencing, inspection, and compliance) regime in order to speed up economic growth, use women’s power (nari shakti), ensure energy security and energy transition, improve education and skills, make administrative reforms and enforce contracts, and make the public sector asset monetisation scheme work. It has also asked states to deal with problems in the power sector. “If the money from asset monetisation is used to pay down public sector debt, the sovereign credit rating will go up, and the cost of capital will go down,” he said.
When asked if the Indian economy could reach a growth rate of 8%, he said, “Even if export growth doesn’t pick up, we can still aim for 8% growth and reach it.” “The reason we should be looking at 8% or 9% growth right now is because the global economy was booming in the first decade and is now slowing down… “Potential growth could go from 7% to 8% if the global economy gets better and if efforts to connect the global supply chain work and exports start to grow,” he said.
Experts, on the other hand, warned that the optimistic growth outlook could lead to budget problems. “The Economic Survey, which was released before the Union Budget for FY24, gave a very positive outlook on growth and stressed the need to keep focusing on capital expenditures and fiscal consolidation. We think that being too optimistic about growth could make it harder to cut costs and increase revenue projections in the FY24 Budget. This, in turn, would make it hard for the government to “walk the fiscal talk” if growth prospects don’t meet expectations, as Nomura predicted in a report. In FY24, Nomura thinks the Indian economy will grow by 5.1%.
The Survey said that the good news for India’s growth outlook comes from I the limited health and economic fallout for the rest of the world from the current rise in Covid-19 infections in China and, as a result, the continued normalisation of supply chains; (ii) inflationary impulses from the reopening of China’s economy turning out to be neither significant nor persistent; and (iii) recessionary tendencies in major advanced economies causing a stop to monetary tightening and a
It did, however, warn about the risks of a growing current account deficit, the likelihood of more interest rate hikes in the US, the problem of the rupee falling in value, and the loss of export stimulus that could happen as a result of global monetary tightening. Persistent inflation is expected to make the tightening cycle last longer.
It said that the Central government’s spending on capital expenditures, which went up by 63.4% in the first eight months of FY23, is another growth driver for the Indian economy this year and that it is crowding out the private capex since the first quarter of 2022.
Referring to the effects of the Covid-19 pandemic, the Survey said that the Indian economy seems to have moved past those effects and is getting ready to return to the growth path it was on before the pandemic in FY23. India has had to work hard this year to stop inflation, which was made worse by the troubles in Europe. But steps taken by the government and RBI, along with falling prices for commodities around the world, have finally brought retail inflation below the RBI’s upper tolerance target of 6% in November 2022.
