According to the current Economic Survey, India real GDP growth during 2023-24 is likely to be in 6 % to 6.8%, which is marginally lower than the 7% estimated growth rate for 2022-23. The headline annual inflation in India is 6.8% and core inflation is veering around 6.1%. For an emerging economy like India, it is important to be resilient enough to absorb external shocks. Recent years have been marked by a series of disruptive events like the pandemic,Ukraine war, unanticipated surge in commodity prices and sharp rate increases by the Central Banks. Some of these shocks can continue well into 2023-24. During 2022-23, notwithstanding the external shocks, the Indian economy has managed to grow at around 7% with agriculture growing at 3.5%, industry at 4.1% and services at 9.1%. The service sector in particular is showing a strong expansionary potential after the withdrawal of the pandemic related constraints. In a world faced with elevated financial risks and inflation these are no mean achievements, Fiscal deficit has been constrained at 6.4% of the GDP, the sensibility of not going overboard with fiscal stimuli during the pandemic is now apparent. Revenue buoyancy improved over the last two years. Monthly GST collection went up sharply. Current account deficit notwithstanding the escalation in imported commodity prices have been around 3% of GDP (Apr-Dec 2022) on an average. The foreign currency reserves are $563 billion which is equivalent to 7.5 months import.

However, the future growth trajectory of the country cannot be decoupled from the developments in the global economy. Most of the growth projections tend to indicate global growth will be in the 1.7% to 2.9% range in 2023. Global trade growth can come down to 1%. Headwinds faced by global growth include continuation of Ukraine conflict, elevated inflation, possibility of a surge in food, fuel and fertiliser prices. These developments can lead to continuation of the hawkish Central Bank guidance on rate increase. Market expectations about hardening bond yields, stronger dollar and possibility of more bank failures have created uneasiness amongst investors. About 80% of global growth will be contributed by Emerging Market Economies(EMEs) particularly China and India. Deceleration in Global GDP growth from the current level of 3.2% in 2022 to around 2.5%, can lower the price of commodities including crude, which will be beneficial to India particularly when its domestic demand revs up.

The Ukraine war led to a surge in commodity prices in the initial months followed by marginal downward adjustments. The Indian economy which imports around 87% of its crude requirements was adversely affected. However, the alacrity shown in the combined usage of economic and foreign policy helped India to diversify its crude petroleum supply base. Russia’s share in India’s crude import basket used to be around 2% in 2021, this has recently gone up to around 30% in the recent months. This change in supplier base allowed India to keep headline inflation in check. It also helped in keeping the trade deficit within a reasonable bound. A scrutiny of the data would indicate Indian unit import price continues to be lower than prevailing Dubai crude price. This trend is expected to continue, which would lead to further increase in the Russian share of Indian crude. Natural gas supply is another area of concern.

The growth momentum of the Indian economy continues to remain strong. There is a rebound in private consumption expenditure, this has positively impacted output growth and capacity utilisation across sectors. For the rebound in consumption one must acknowledge that vaccinations helped people to get back to normal work fairly quickly. It also helped with the return of migrant workers to urban centres and construction sites. Completion of construction work has brought down the inventory levels.

There has been a 63.4% increase in Govt. capital expenditure in the first eight months of 2022-23. This has also helped in crowding-in of private investment. The credit requirement has been met adequately by banks which are now much better capitalised. Credit to MSMEs increased by 30.6% up to Jan-Nov 2022. The borrowers are moving away from bonds having high yield rates. The cost of external borrowings have gone up due to higher interest rate and hedging costs. As a result Indian banks have become attractive. If cost of credit doesn’t rise significantly then credit demand would expand in 2024.

India's economic growth in 2022-23 has been largely driven by consumption and investment, employment generation data in the country is a bit tardy, however there is enough evidence from data that urban unemployment has come down, net registration in employee provident fund has increased, MGNREGA has become more focused. At this stage it may be useful to recognise the importance of food security schemes, which have supported the poorer section of the population for the last three years.

Looking ahead in 2023-24 is unlikely to be very different from 2022-23, notwithstanding the global headwinds the economy would be firmly dependent on domestic growth drivers like private consumption and investment. Decline in global trade growth can affect it positively in case of import prices and negatively in case of exports. Financial markets and global capital flows need to be watched carefully as they normally have a deleterious impact on EMEs during periods of economic disruptions.

Siddhartha Roy is the former Economic Advisor of the Tata Group. Currently he is the CEO of SR Associates an Economic Advisory and Strategic Consultancy enterprise.

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