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GDP to grow at 7pc; inflation set to moderate: Finmin Report

GDP to grow at 7pc; inflation set to moderate: Finmin Report


GDP to grow at 7pc; inflation set to moderate: Finmin Report

Indian economy is expected to grow at 7 per cent in FY23 despite global headwinds while retail inflation would moderate in line with wholesale inflation which fell to a 25-month low in January, the Finance Ministry said on Monday.

Supported by the gains from high services exports, the moderation in oil prices, and the recent fall in import-intensive consumption demand, India’s current account deficit is estimated to fall in FY23 and FY24, providing a buffer to the rupee in uncertain times, Monthly Economic Review by the ministry said. This will provide a much-needed cushion to India’s external sector at a time when the Fed is likely to raise rates further and ensure that India’s external finances are not a major cause of concern, it said.

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The jump in net service exports over the previous year is a critical development as India increases its market share in both IT and non-IT services, whose demand has been triggered by the pandemic, it said, adding, imports are also less costly now with the easing of global commodity prices. “With a manageable current account deficit and a growth rate highest among the major economies in FY23, the Indian economy has shown a new-found resilience in sailing through the turbulence caused by the pandemic and geopolitical stress,” it said.

Macroeconomic stability is likely to receive a further boost in FY23 as the current account deficit is set to narrow from the year-beginning estimates, it added. With regard to growth, the report said, real GDP estimates for Q3 of 2022-23 reaffirm the ability of the Indian economy to grow on the strength of its domestic demand even as a rise in global uncertainties slows global output. Indian economy witnessed a growth of 4.4 per cent in the third quarter that ended in December 2022. Growth momentum gathered in Q3 of 2022-23 is likely to be sustained in Q4, as reflected in the performance of High-Frequency Indicators for January/February 2023, it said.

GST collections have now, in February 2023 crossed the Rs 1.4 lakh crore benchmark for twelve successive months. Noting that falling international commodity prices and government measures have aided in easing inflationary pressures, the report said, inflationary pressures eased in February, with a slight moderation in CPI inflation and WPI inflation softening to a 25-month low. “With WPI inflation declining to a 25-month low, its transmission to CPI inflation is soon expected. Household inflation expectations remained anchored, as seen in the January 2023 round of RBI’s Households’ Inflation Expectations Survey,” it said.

Going forward, it said, the inflation trajectory will likely be determined by extreme weather conditions like heatwaves and the possibility of an El Nino year, volatility in international commodity prices and pass-through of input costs to output prices. Forecasts by various international agencies show that inflation in India will moderate in FY24 compared to FY23 and is likely to remain in the range of 5-6 per cent, with risks evenly balanced, it said. Tightening of financial conditions by central banks to tame inflation has raised concerns regarding the exacerbation of corporate debt vulnerabilities, with corporates being already highly leveraged, it said.

However, the report said, in the case of India, the concern seems limited. India’s private nonfinancial sector debt has witnessed a steady decline since mid-2021, along with an improvement in the quality of debt. India’s corporate sector credit-GDP ratio is also below its historical trend, implying sufficient space for the corporate sector to borrow further, it said, adding, the strong debt profile portrayed by corporates will prove to be critical in maintaining the macroeconomic stability of the economy going forward.

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