Indian economy projected to grow between 6-6.8% in FY24; private capex necessary for job creation: Economic Survey 2023

• The Economic Survey 2023 also projected Indian GDP to grow at 7% in FY23, down from 8.7% in FY22.
  
• Finance minister Nirmala Sitharaman credited the revival in capital expenditure spendings by the central government and the private sector as one of the drivers of economic growth in FY23.
  
• The survey also underlined that capital expenditure investments from the private sector are now essential in creating jobs, as exports and pent up demand are now plateauing.
  

The pre-budget Economic Survey 2023 released on Tuesday projects India’s gross domestic product (GDP) will grow 6-6.8% in the financial year 2023-24, the slowest since 2021-2022.

In its first advance estimate, the Survey has projected a GDP growth of 7% for FY23, ahead of the Reserve Bank of India’s projection of 6.8%.

“The optimistic growth forecasts stem from a number of positives like the rebound of private consumption giving a boost to production activity, higher capital expenditure (capex), near universal vaccination coverage enabling people to spend on contact-based services,” said the Economic Survey 2023.

The return of migrant workers to cities to work at construction sites also led to a “significant decline” in housing market inventory, the Survey added.

“As expected of a nation of this size, the Indian economy in FY23 has nearly recouped what was lost, renewed what had paused, and re-energised what had slowed during the pandemic and since the conflict in Europe,” the Survey said.

Government & private capex revival key growth driver in FY23, says FM

The Survey credited the revival in capital expenditure spendings by the central government and the private sector as one of the drivers of economic growth in FY23, while tabling the Economic Survey 2023 in the Parliament on Tuesday.

“The capital expenditure of the Central Government and crowding in the private capex led by strengthening of the balance sheets of the corporates is one of the growth drivers of the Indian economy in the current year,” the Survey said.

Larsen & Toubro, which is often seen as a proxy for India’s infrastructure development, also sees positive trends in capex spending in the private sector.

“We are possibly amidst a synchronous capex recovery in India and the GCC (Gulf Cooperation Council). With the revival of private capex investments, India should witness a multi-year capex cycle in the current decade, which augurs well for us,” said SN Subrahmanyan, chief executive officer and managing director, L&T, on Monday.

The government is also bullish on credit offtake, and said it will usher in a virtuous investment cycle going forward, in combination with an increase in capex by the private sector.

The micro, small and medium enterprises (MSME) sector also witnessed healthy growth in credit uptake at 30.6% between April and November 2022, thanks to “well-capitalised public sector banks ready to increase the credit supply and the credit growth to the MSME sector,” the Survey said.

Unemployment rate falls to 9.8% in July-Sept 2022, but private capex needed for job creation going forward

On the jobs front, the Survey pointed out that the unemployment rate for people aged 15 years and above has fallen from 9.8% in the quarter ended September 2021 to 7.2% in June-September 2022.

However, the Survey said that with exports and the release of pent-up demand plateauing, the onus is now on the private sector to step up with capex investments to create jobs going forward.

“Since export growth is plateauing and the ‘pent-up’ release of demand will have a finite life, it is essential that capex continues to grow to facilitate employment in the economy,” the Survey said.

However, Rumki Majumdar, economist, Deloitte India, said that India needs to move up the global value chain if it wants to put the emphasis on creating jobs.

“This would require manufacturers to leapfrog to newer technologies and transition to a new and exacting definition of competition, both of which will have implications on job creation, especially for the unskilled,” Majumdar said.

‘Financial contagion emanating from advanced economies’

Earlier today, the International Monetary Fund said it expected the Indian economy to grow at 6.1% in 2023, as against 6.8% in 2022. It’s not just India which has seen a downward revision in its growth outlook – according to the IMF’s latest World Economic Outlook, the global economy is projected to grow at 2.9% in 2023, significantly lower than the historical average of 3.8%.

“Slowing global growth apart from monetary tightening may also lead to a financial contagion emanating from the advanced economies,” the Survey said.

RBI projects inflation at 6.8% in FY23, which is still above its upper tolerance limit of 6%. However, the Survey remained optimistic about the inflation scenario in the country, saying, “India’s inflation rate did not creep too far above its tolerance range compared to several advanced nations and regions.”

The Survey added that the inflation expectations of both businesses and households have moderated now.

Services sector to lead growth in FY23

The Economic Survey underlined that the services sector is expected to far outpace the agriculture and industrial sectors in terms of growth.

In its first advance estimate for FY23, the Survey projects the services sector to report a growth rate of 9.1% in its gross value add, up from 8.4% in FY22.

In contrast, the industrial sector is projected to grow at 4.1% in FY23, significantly lower than 10.3% in FY22.

The agriculture and allied activities sector is expected to grow slightly faster at 3.5% in FY23, up from 3% in FY22.

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