The finance ministry in its January economic review said despite high inflation, high-frequency indicators in December 2022 and January 2023 indicate the economy was on track to achieve 7% GDP growth in 2022-23. Due to the Centre's focus on "macroeconomic stability" in the last several years, the Indian economy faces the year ahead with "confidence", while being mindful of the risks, says the ministry's monthly economic review.
As per the ministry, sustained growth in GST collections, electronic toll collections and the volume of E-way bills generated, and the indices of manufacturing activity such as the PMI-manufacturing, the Index of Industrial Production and the Index of Core Industries (ICI) show the manufacturing activity continues to grow steadily.
However, multiple factors have increased risks to the global economic outlook, says the ministry. "The year 2022 witnessed the global economy operating under an extremely challenging macroeconomic environment. The geopolitical tensions in Europe, spiralling energy, food and fertiliser prices, monetary tightening and inflationary trends have elevated the downside risks to the global economic outlook," the ministry adds.
However, despite these headwinds, the Indian economy is estimated to grow by 7% YoY in FY23, the ministry adds. The Economic Survey 2022-23 also projected a baseline growth of 6.5% for FY24, though risks are more skewed to the downside than the upside, the FinMin argues.
The prime reason for the downward outlook is the geopolitical environment, which remains fraught. "In turn, it could cause further economic dislocation through disruptions to the supply chain channels and more."
The ministry also says the return of "El Nino conditions" could lead to deficient monsoon rains and lower agricultural output, further leading to higher prices.
Despite multiple challenges, the ministry says the most recent consumer confidence survey for January 2023 suggests a tentative recovery in consumer confidence. The survey assesses the prospects for prices and employment in the year ahead.
"The measures announced in the Union Budget FY24, such as a rise in capital expenditure, increased focus on infrastructure development, boost to the green economy, and initiatives for strengthening financial markets etc., are expected to promote job creation and spur economic growth," the ministry says in its review.
Measures announced for the MSME sector will likely reduce the cost of funds and aid small enterprises. "Revision in tax slabs under the New Personal Income Tax Regime is expected to boost consumption, thus providing more impetus to economic growth. Easier KYC norms, expansion of DigiLocker services, and overall impetus on digitisation and last-mile connectivity are predicted to strengthen financial markets."
On the global level, during Q4 2022, various high-frequency indicators have pointed towards a slowdown in general, as monetary tightening appeared to have started weakening global demand. This may continue in 2023, says the ministry, as various agencies have forecasted a decline in global growth. Even as global output is expected to slow, the IMF and the World Bank project India to be the fastest-growing major economy in 2023.
