India will grow 6.5% this year but CAD is expected to widen: All you need to know about Economic Survey 2023
Jan 31, 2023
India's economy will grow at 6.5 per cent in 2023-24, while the currency account deficit is expected to widen this year as global commodity prices remain elevated, according to the Economic Survey tabled in Parliament by Finance Minister Nirmala Sitharaman.
The loss of export stimulus is further possible as the slowing world growth and trade shrinks the global market size in the second half of the current year, it said. The survey also cautioned that challenge of the depreciating rupee, although better performing than most other currencies, persists with the likelihood of further increases in policy rates by the US Federal Reserve.
Despite the downward revision, the growth estimate for FY23 is higher than for almost all major economies and even slightly above the average growth of the Indian economy in the decade leading up to the pandemic.
"The upside to India’s growth outlook arises from (i) limited health and economic fallout for the rest of the world from the current surge in Covid-19 infections in China and, therefore, continued normalisation of supply chains; (ii) inflationary impulses from the reopening of China’s economy turning out to be neither significant nor persistent; (iii) recessionary tendencies in major AEs triggering a cessation of monetary tightening and a return of capital flows to India amidst a stable domestic inflation rate below 6 per cent; and (iv) this leading to an improvement in animal spirits and providing further impetus to private sector investment," said the survey.
The Economic Survey is an annual report card of the economy, which is presented a day before the budget and examines the performance of each and every sector and then suggests future moves.
Inflation: The Survey states that the Consumer price inflation in India went through three phases in 2022. A rising phase up to April 2022 when it crested at 7.8 per cent, then a holding pattern at around 7.0 per cent up to August 2022 and then a decline to around 5.7 per cent by December 2022. The rising phase was largely due to the fallout of the Russia-Ukraine war and a shortfall in crop harvests due to excessive heat in some parts of the country. Excessive heat in summer and uneven rainfall thereafter in some parts of the country affected the farm sector, reducing supply and causing prices of some major products to rise.
Due to the anticipated slowdown in advanced economies, inflation risks coming from global commodity prices are likely to be lower in FY24 than in FY23 and the survey expresses that the inflation challenge in FY24 must be a lot less stiff than it has been this year.
Fiscal deficit: According to the Survey, fiscal deficit is expected to be at 6.4% of GDP in FY23. The Survey highlighted that conservative budget assumptions provided a buffer during global uncertainties. The resilience in the fiscal performance was due to a recovery in economic activity and buoyancy in revenues.
Direct taxes grew at 26 % Year On Year basis due to corporate and personal income tax growth in FY22. The Survey further added that growth rates observed in the major direct taxes during the first eight months of FY23 were much higher than their corresponding longer-term averages.
High imports have led to a 12.4 % YoY growth in the customs collection from April to November 2022. The excise duty collection has declined by 20.9 % from April to November 2022 on a YoY basis
GST collection: The GST Tax payers doubled to 1.4 crore from 70 lakh in 2022. The gross GST collections were Rs 13.40 lakh crore from April to December 2022, an annual growth of 24.8 % with an average monthly collection of Rs 1.5 lakh crore, noted the Survey. The improvement in GST collections has been due to the nationwide drive against GST evaders and fake bills and systemic changes introduced such as rate rationalisation correcting inverted duty structure.
Disinvestment: Out of the budgeted amount of ₹65,000 crore for FY23, 48 % has been collected as of 18 January 2023 as the pandemic-induced uncertainty, the geopolitical conflict, and the associated risks have posed challenges before the plans and prospects of the government's disinvestment targets over the last three years” stated the Economic Survey 2022-23.
Capital expenditure: According to the Survey, the capital expenditure by the Central Government has steadily increased from a long-term average 2.5% of GDP in FY22 PA. It is further budgeted to increase to 2.9% of GDP in FY23 highlighting an improvement in the quality of Government expenditure over the years.
The General Government Debt to GDP ratio increased from 75.7 per cent of end-March 2020 to 89.6 per cent at the end of the pandemic year FY21. It is estimated to decline to 84.5 per cent of GDP by end-March 2022. The emphasis on capex-led growth will enable India to keep the growth-interest rate differential positive. A positive growth-interest rate differential keeps the debt levels sustainable.
Exports: The Economic Survey highlights that during FY23 (till December 2022) India’s exports displayed resilience on the back of record levels of exports in FY22. Petroleum products, gems & jewellery, organic & inorganic chemicals, drugs & pharmaceuticals were among the leading export items. However, the slowdown in Indian exports is inevitable in a slowing global economy, characterised by slowing global trade.
Apart from the elevated crude oil prices, the revival of economic activity contributed to an increase in imports. Petroleum, crude & products; electronic goods; coal, coke & briquettes, etc.; machinery, electrical & non-electrical and gold were among the top import items. It mentions that while continued softening of the global commodity price outlook would assist moderate imports going forward, non-gold, non-oil imports may not decelerate significantly.
India achieved an all-time high annual merchandise export of US$ 422 billion in FY’22. Merchandise export were US$ 332 billion over April-December 2022 against US$ 305 billion during the period April-December 2021. Significant strides in exports were registered in drugs and pharmaceuticals, electronic goods and organic and inorganic chemicals sector in FY’22.
On the issue of Balance of Payments (BoP), the Economic Survey says that it encountered pressures during the year under review. While the impact of a sharp rise in oil prices was discernible in the widening of the Current Account Deficit (CAD), notwithstanding the cushion provided by the surplus on Invisibles (services, transfer, and income), policy tightening by the US Federal Reserve and the strengthening of the US dollar led to Foreign Portfolio Investment (FPI) outflows.
As a result, the surplus of the capital account was lower than the CAD leading to a depletion of forex reserves on a BoP basis. Forex reserves as of the end December 2022 stood at US$ 562.72 billion, accounting for 9.3 months of imports.
Agriculture sector remains buoyant: The survey said that India’s agriculture sector has been witnessing robust growth with an average annual growth rate of 4.6 percent over the last six years. The Survey attributes the sector’s growth and buoyancy to the “measures taken by the government to augment crop and livestock productivity, ensure certainty of returns to the farmers through price support (Minimum Support Price), promote crop diversification” and, focused interventions to “enhance credit availability, facilitate mechanisation and boost horticulture and organic farming”. The Survey observed that these interventions are in line with the recommendations of the Committee on Doubling of Farmers’ Income.
Thrust on rural development:Economic Survey 2023 noted that 65% (2021 data) of the country’s population lives in the rural areas and 47 per cent of the population is dependent on agriculture for livelihood. Thus, the focus of the government on rural development is imperative. The Government’s emphasis has been on improving the quality of life in rural areas to ensure more equitable and inclusive development. The aim of engagement of the government in the rural economy has been “transforming lives and livelihoods through proactive socio-economic inclusion, integration, and empowerment of rural India.”
[The Times of India]