“After a gap of two years, the Indian economy will show a meaningful expansion, as the real GDP in FY23 will be 9.1% higher than the FY20 (pre-Covid level) GDP level,” said Sunil Kumar Sinha, Principal Economist, India Ratings and Research.
However, the size of the Indian economy in FY23 will be 10.2% lower than the FY23 GDP trend value, according to the ratings agency. A continued weakness in private consumption and investment demand is estimated to contribute 43.4% and 21.0%, respectively, to this shortfall.
“However, if the impact of Omicron on Q4 FY22 growth turns out to be greater than India Ratings’ estimate, then there could be some upside to the FY23 growth originating from the base effect,” he cautioned.
In its Economic Outlook for FY23, India Ratings said that consumption demand is still weak and not broad based and the slowdown in private final consumption expenditure had begun even before the Covid-19 pandemic hit the Indian economy.
It expects a moderation in the retail and wholesale inflation to 4.8% and 5.7%, respectively in the next fiscal.
“Real (inflation-adjusted) wages are indicating an erosion of household’s purchasing power. Another factor that has impaired the consumption demand lately is an abrupt rise in the health expenditure of households,” Sinha said, adding that
these trends may be cyclical in nature, but the picture even at the structural level is not healthy for households.
Households savings have declined and their leverage has gone up significantly since FY12, suggesting that a large part of the consumption demand in the past has been financed through either reduced savings and a higher debt or both, according to the report.
Investments, as measured by gross fixed capital formation (GFCF), are expected to grow 8.7% on-year in FY23. However, the revival of private investment demand will be a slow and drawn-out process. The two developments that can, however, hasten this process are merchandise exports which has shown a surprise turnaround in FY22 and the Production-Linked Incentive Scheme, said India Ratings.
Ind-Ra expects merchandise exports to grow 18.3% on-year in FY23 due to a favourable global trade outlook.
