The financial year 2022-23 has been strong for India’s economy despite the tailwind of the pandemic and the headwind of the geo-political conflict coupled the global economic uncertainty. The strength is seen in the economy, estimated to grow at 7 per cent, higher than the trend rate and the growth of the other major economies, the Ministry of finance's report said.
The monthly report brought out by the Department of economic affairs said the growth rate has been made sustainable as growing macroeconomic stability is being seen in the improved current account deficit, easing inflation pressure, and a banking system strong enough to survive the increase in policy rates.
“With the April 2023 update of the World Economic Outlook (WEO) projecting India to be the fastest-growing economy in FY24, it is likely to be underpinned by even more robust stability in the macroeconomic variables. The Economic Survey 2022-23 and RBI also project the Indian economy to register a real GDP growth rate of 6.5 per cent in 2023-24. The estimates are in line with the World Bank estimate of 6.3 per cent and ADB estimate of 6.4 per cent for 2023-24.”
The report cautioned that it was important to be vigilant against potential risks such as El Nino-like conditions creating drought conditions and lowering agricultural output and elevating prices, geopolitical developments and global financial stability.
The report highlighted that the fiscal parameters for the centre and the states in FY23 have been robust, as seen in solid revenue generation and improvement in the quality of expenditure. “The improvement in expenditure quality is driven by significant capex (capital expenditures) by the centre and the rationalisation of revenue expenditure. Consequently, the ratio of revenue expenditure to capital outlay is lower for Apr-Feb 2023 compared to the corresponding period of the previous year. The centre's emphasis on capex has also encouraged the states to announce an increase in their capex allocation in the budget of FY24,” the ‘monthly economic review March 2023’ report added.
The broad-based economic activity and robust revenue buoyancy have further led to a consolidation in states’ fiscal deficit target, with most states projecting a fiscal deficit for FY24 in the range of 3-3.5 per cent of the GSDP, in line with the borrowing limit announced by the central government.
The Internal macroeconomic stability has further strengthened with easing inflationary pressures in March 2023, driven by the softening of food and core inflation, which fell to a 16-month low.
The report agreed that the core inflation, however, in many major economies continues to be sticky, prompting faster-than-expected policy rate hikes by central banks. The recent collapses of a few banks in the US and Europe on the back of this tightening cycle have posed pertinent questions to policy-makers on the vulnerability of their financial systems, particularly in emerging market economies. “In this context, we restate factors that make India’s banking system considerably less prone to such incidents.”
