Nirmala Sitharaman
Indian Finance Minister Nirmala Sitharaman while presenting the Budget for the previous financial year. Image Credit: ANI

New Delhi: India forecast economic growth of 6 per cent to 6.8 per cent in the 2023-24 fiscal year, slowing from the 7 per cent growth projected for the current year ending on March 31, as a global slowdown is likely to hurt exports.

The finance ministry’s released its annual Economic Survey and Finance Minister Nirmala Sitharaman presented it to parliament on Tuesday, a day before she is set to unveil the government’s budget for the coming fiscal year.

The economic growth forecast for 2023-24 is higher than the International Monetary Fund’s projection of 6.1 per cent, as the finance ministry expects the global weakness will be partially offset by strong domestic demand.

The report, prepared by Chief Economic Adviser V Anantha Nageswaran, said its baseline scenario was for 6.5 per cent growth in 2023-24, which would still make India one of the fastest growing economies.

“The actual outcome for real GDP growth will probably lie in the range of 6 per cent to 6.8 per cent, depending on the trajectory of economic and political developments globally,” it said.

For India, on balance, a modest slowdown in global growth would be beneficial as it would help bring down commodity prices and ease inflation concerns, Nageswaran told a news briefing after the release of the survey.

India’s economy has rebounded since the COVID-19 pandemic.

But the Russia-Ukraine conflict has triggered inflationary pressures and prompted central banks, including India’s, to reverse ultra-loose monetary policy adopted during the pandemic.

The survey said inflation was not high enough to deter private consumption nor low enough to weaken investment, even though it remained above the central bank’s target range of 2-6 per cent through much of 2022-23.

Consumer prices in December were 5.72 per cent higher than a year earlier.

Demand in the economy will remain “brisk” in 2023-24 as “a vigorous credit disbursal and capital investment cycle is expected to unfold in India with the strengthening of the balance sheets of the corporate and banking sectors”, the survey said.

However, this could mean that the current account deficit might stay high, because a strong domestic economy would support imports while exports were expected to ease due to weakness in foreign markets.

India’s current account deficit was 4.4 per cent of GDP in the July-September quarter, up from 2.2 per cent in the April-June quarter and sharply was sharply from 1.3 per cent a year earlier as a result of rising prices for imported fuel and commodities and a weak rupee.

In the medium term, the Indian economy can grow by an average of 6.5 per cent, the survey said. India’s potential GDP growth could rise to 7-8 per cent per annum in the medium term if economic reforms are carried out, it added.

Improved public digital infrastructure and a turn in the financial cycle, with the deleveraging of banks and corporate balance sheets, will add to India’s potential growth, according to Nageswaran.

“This will add 50-100 basis points to India’s trend growth over the medium term above the 6 per cent trend assumed by many forecasters,” he said.

The pandemic years led to a surge in India’s general government debt, prompting the government to undertake fiscal consolidation.

The government is on track to meet its fiscal deficit target of 6.4 per cent for 2022-23 as well as its medium-term fiscal goal, the survey said. In the budget for 2022-23, the government had planned to bring down the fiscal deficit to 4.5 per cent by 2025-26.

Growth led by capital expenditure will help India keep India’s growth-interest rate differential positive and keep government debt sustainable, the survey said.