Home / Economy / Focus on internal demand drivers; Q2 GDP is key: CEA

MUMBAI : Projections that the India economy will grow by 6.5-7% in the current financial year seem reasonable now, but it’s the September quarter figures that will bring clarity about the full-year growth trajectory, said the government’s chief economic adviser V. Anantha Nageswaran.

The CEA also sees capacity utilization at factories reaching the levels that have in the past triggered private investments.

Speaking at the State Bank of India’s Banking and Economic Conclave on Thursday, he also said that India should focus on internal drivers of demand for achieving medium-term growth.

“Projections of the private sector, the Reserve Bank of India and international participants for FY23 (growth) are roughly in the ballpark of 6.5-7.0%. This appears to be reasonable at this point in time although we will get data on the fiscal second quarter in a few days, which will give clarity on these numbers, whether they need to be revised. By and large, the projections for FY24 coming from international agencies is converging around 6.0-6.2%," Nageswaran said.

Over the last week, several rating agencies and banks have lowered India’s FY23 gross domestic product growth projections, citing headwinds from higher interest rates and slowing global trade.

Ratings firm Crisil lowered its forecast for India’s real GDP growth to 7% for the current fiscal from 7.3% estimated previously. Global ratings firm Moody’s too lowered India’s 2022 real GDP growth projection to 7% from 7.7%. Goldman Sachs expect India’s economic growth in 2023 to slow to 5.9% from 6.9% this year.

Nageswaran, however, said prospects of a revival in India’s private sector capex remain robust in the medium term. Private sector capex in the first half crossed 3 trillion and is expected to touch 6 trillion, he said.

“We need to be cautious of the export outlook for us in the coming years and concentrate on the internal drivers of demand," he said.

“However, internal drivers of demand are looking constructive and positive, resilient, reinvigorated investment cycle, stable financial system and structural reforms are paving the way for medium- term growth to continue. The digital infrastructure built over the last eight years will also support business growth."

The CEA also assured that the banking system should be able to sustain credit growth at current levels, despite rising interest rates. For the fortnight ended 21 October, non-food credit rose 18.3% from a year earlier against a deposit growth of around 9.5%, showed data from RBI.

“This (higher household income and consumption) should not necessarily come in the way of banks’ profitability because volume growth is pretty strong and interest rates for lenders are not very constrictive," said Nageswaran.

“So we may be entering a fairly comfortable Goldilocks (moderate rather than extreme) zone in terms of the interest rates charged to borrowers and rates paid on deposits. So credit growth momentum is holding up quite well."

The government will release the GDP growth estimates for the second quarter (July-September) of the ongoing financial year (2022-23) on 30 November.

After double digit expansion in the first quarter, India’s economic growth is expected to slow to 6.5% in the second quarter largely due to the high base and erosion of corporate profitability due to inflation.

Services sector recovery and government capital expenditure together supported growth in the pre-festive quarter ended September.



Gopika Gopakumar

Gopika Gopakumar has worked for over 15 years as a banking journalist across print and television media. Her expertise lies in breaking big corporate stories and producing news based TV shows. She was part of the 2013 IMF Journalism Fellowship Program where she covered the Annual & Spring meetings of the International Monetary Fund in Washington D.C. She started her career with CNBC-TV18, where she also produced a news feature show called Indianomics and an award winning show on business stories from South India called Up South. She joined Mint in 2016.
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