An Upbeat Forecast

The Centre’s Economic Survey 2022-23 outlines four factors that are likely to propel India’s growth in the coming fiscal. These include the limited economic impact from the current surge in Covid19 cases in China; the limited impact of inflationary impulses from China’s re-opening; better capital inflow in India as advanced economies reconsider monetary tightening in the wake of recessionary tendencies there and India’s domestic inflation stabilising below 6%.

The Survey says this will lead “to an improvement in animal spirits and providing further impetus to private sector investment.” The Survey throws a hint that in the coming fiscal growth will be spurred by domestic demand and a pick-up in capital investment. In this context it notes the structural changes implemented in the past years. These include the repair of the private sector’s balance sheets and the government stepping in with substantially higher capital expenditure. It says that “Aided by healthy financials, incipient signs of a new private sector capital formation cycle are visible.” Budgeted capital expenditure rose 2.7X in the last seven years, from FY16 to FY23, re-invigorating the capex cycle.

India’s economic recovery is now complete and even with growing global growth headwinds, India’s growth is likely to remain robust. The Survey has cautionary words about India’s growing Current Account Deficit (CAD) but notes that as global growth cools, so will oil prices. These are silver linings for India.

The growth story sketched by the Survey throws a hint or two about what can be expected in the Budget to be presented tomorrow. The government may go in for higher capital expenditures even as it remains cautious on overall macroeconomic management. If it manages that, that is set to put India back on the road to fast and sustainable economic growth.

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Siddharth Singh

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