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Economic Survey 2022: Is the FY23 GDP growth forecast rosy or realistic?

If the government is keen on helping GDP grow by 8 percent and above, it would have to keep up its fiscal support through both revenue and capital spending. That could make fiscal consolidation difficult.

January 31, 2022 / 08:34 PM IST

The Economic Survey 2021-22 has sounded optimistic on the prospects of economic growth for India, both in the current fiscal year and the next. The survey estimates FY22 real gross domestic product (GDP) growth to be 9.2 percent, on par with the first advance estimates released by the Central Statistical Organisation recently.

Private forecasters and even the International Monetary Fund’s (IMF) estimates too are very close to that of the survey for the current year. What’s more is that the first revised estimates of GDP during the pandemic year of FY21 put the contraction lower at 6.6 percent than the previously estimated 7.3 peercent. In short, India’s economy was hit by the pandemic, but not as bad as it seemed before.

But what has caught the eye is the Economic Survey’s projection of 8.0-8.5 percent GDP growth for FY23. “Growth in 2022-23 will be supported by widespread vaccine coverage, gains from supply-side reforms and easing of regulations, robust export growth, and availability of fiscal space to ramp up capital spending,” the survey said. Of these factors, widespread vaccine coverage could indeed help boost economic activity and thus lift up GDP growth. If the fiscal support from the government continues to remain high, some economists believe that the survey’s growth projection has a fair chance of coming true. Another factor that works in favour of the survey’s projection is the base effect on GDP growth figures. Given the deep contraction in FY21, especially in the first quarter, the growth numbers for the first quarter of FY22 were robust and that for Q1FY23 may also be in double digits.

But FY23 forecast by most economists is below the survey’s level.  There are enough headwinds around for growth. Global commodity prices are showing no signs of cooling off and that does not augur well for a net importer such as India. The US Federal Reserve will soon begin reversing its policy and so will other major central banks of the world. That means less support to prop up growth in those respective economies. Advanced economies are key export markets for India and subdued growth prospects for them could drag down the export growth as well.

In this context, the Economic Survey’s forecast of 8.0-8.5 percent of real GDP growth for FY23 may look optimistic as the spectre of a reduction in global liquidity, geopolitical tensions, elevated inflation that could erode growth and the probability of resurgence of infections looms.


Economists at Crisil Ltd believe that the key downside risks to the survey’s projections emanate from high crude oil prices and reversal of monetary policy by key central banks. “We believe there are downside risks to the growth outlook of 8-8.5 percent largely from external factors – high crude prices and reversal of monetary policy by systemically important central banks,” D.K Joshi, chief economist at the rating agency said in a note. To be sure, the Economic Survey has assumed a sharp reduction in global liquidity in its assumptions and still pegged the growth to be buoyant. The survey assumes the average crude oil price to be $70-75 per barrel during the year as against the current $90 per barrel. Granted, there is a fair chance that oil prices may ease next year. Even so, crude remains an unpredictable factor. Beyond oil too, prices of commodities such as metals may remain elevated, according to economists. That would mean upward pressure on domestic inflation which would erode growth to some extent.

“We believe if we are going to achieve somewhere around 9 percent and above GDP growth this year, then our estimate for FY23 is somewhere between 7.5 percent and 8.0 percent,” said Shubhada Rao, founder of independent research firm QuantEco Research Ltd.  The downside risks to growth next year would be from elevated oil prices and the impact of the same on manufacturing in India, she added.

The upshot is that if the government is keen on helping GDP grow by 8 percent and above, it would have to keep up its fiscal support through both revenue and capital spending. That could make fiscal consolidation difficult. But, given the buoyancy in revenues, the government may just be able to pull it off.​

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Aparna Iyer
first published: Jan 31, 2022 08:34 pm
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