Govt sees GDP growth dipping below the RBI forecast

The Centre expects growth to slow down further in 2023-24 amid global recession fears. Photo: Mint
The Centre expects growth to slow down further in 2023-24 amid global recession fears. Photo: Mint


Government expects external shocks and high interest rates to hit economy, making budget-making for FY24 even more challenging.

The government expects India’s economic growth to slow to 6.5% in the current fiscal year because of external shocks and monetary policy tightening, a government official said.

The pace is slower than the Reserve Bank of India’s latest projection of 7% GDP growth. In fact, the Centre expects growth to slow down further in 2023-24 amid global recession fears, making budget-making for FY24 even more challenging for policymakers.

Slowing growth may prompt finance minister Nirmala Sitharaman to balance laying a road map for fiscal consolidation with growth-stimulating measures in the coming budget, expected to be announced on 1 February. It will be this government’s last full budget before the 2024 general election.

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“We are expecting real GDP growth for FY23 at 6.5%, given the challenging global economic environment. Nominal GDP will be close to 14%, with retail inflation hovering around 7% and wholesale inflation at 10%... However, the big challenge is not growth or inflation, it is the current account deficit, and trade deficit in particular," the official said. “Growth will definitely slow next year compared to this year, but it will be better than most countries," he said.

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Queries emailed to a spokesperson for the finance ministry on Thursday morning remained unanswered till press time.

The national statistical office will release the second quarter GDP numbers on 30 November. The GDP expanded at a slower-than-expected 13.5% in the first quarter, and most economists have pegged the second quarter numbers at close to 6.5%.

Moody’s Analytics, in its latest APAC Outlook on Thursday, projected that India is headed for slower growth in 2023, in line with its long-term potential. It cautioned that if inflation persists, the Reserve Bank of India (RBI) will increase the repo rate above 6%, causing GDP to falter. 

RBI, in its 30 September policy meeting, lowered the GDP growth forecast to 7% from the 7.2% estimated earlier. It had hiked the repo rate for the fourth straight time by 50 basis points, taking the policy rate to a three-year high of 5.9%.

The Centre’s forecast is in line with the World Bank’s latest projection, which sharply cut growth forecast for FY23 by 100 basis points to 6.5% last month, attributing it to spillovers from the Russia-Ukraine war and the global monetary policy tightening.

The International Monetary Fund also cut India’s growth forecast for this fiscal to 6.8% last month from its earlier projection of 7.4%. The higher-than-expected nominal GDP will, however, help the Centre achieve the fiscal deficit ratio target of 6.4% of GDP. 

In the monthly economic review on Thursday, the finance ministry cautioned that a rapid deterioration in global growth prospects, coupled with high inflation and worsening financial conditions, has increased fears of an impending global recession. Devendra Kumar Pant, chief economist of India Ratings and Research, said demand recovery appears weaker than expected if one looks at volume growth of fast-moving consumer goods firms in the second quarter of FY23.

“A large part of weaker demand recovery is due to persistently high inflation, leading to rural wage growth being negative for the most part of this fiscal," Pant said. “Inflation is the biggest risk, which will slow demand growth further, leading to a weaker economic growth scenario in FY24."

Madan Sabnavis, chief economist of Bank of Baroda, said GDP growth in FY23 will be higher at 6.8%, aided by the recovery in the services sector, even though there will be downward pressure due to lower corporate performance.

“The only way growth can be spurred in FY24 is higher capex, but there will not be much room as tax buoyancy will be lower, with inflation coming down. There will probably be an increase of not more than 50,000-75,000 crore next year in capex," Sabnavis said. 

The government remains concerned about the widening current account deficit, which may put further pressure on the rupee, which had breached the 83 mark last month against the dollar.

It has now strengthened to 81.7 against the dollar. Economists expect CAD to touch 3% of GDP in the current fiscal from 1.2% of GDP last year. India’s exports contracted for the first time in 19 months by nearly 17% in October.  

“While we have pegged the current account deficit at $130 billion for this year, given the sharp increase in the trade deficit, it may moderate slightly next year due to the global slowdown and the expected decline in commodity prices," said Suman Chowdhury, chief analytical officer, Acuité Ratings & Research. 

Sabanvis, however, said that the current account deficit would continue to strain the external account as the export growth of both goods and services will be under pressure.

“With the GDP nominal number also coming down due to lower inflation, the ratio will tend to remain high. We may expect a number upwards of 3% for the second successive year," he added.

Saurav Anand contributed to the story.

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