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India appears poised to sustain its growth in a more durable way than before with the economy carrying the momentum from FY23 into the current fiscal year, the Annual Economic Review for 2022-23 released by the finance ministry on Thursday said.
However, the report cautioned that escalation of geopolitical stress, enhanced volatility in global financial systems, sharp price correction in global stock markets, a high magnitude of El-Nino impact, and modest trade activity and FDI inflows, are factors that could constrain the pace of growth.
“Should these developments deepen and dampen growth in the subsequent quarters, the external sector may challenge India’s growth outlook for FY24,” the finance ministry said.
The annual review which was released in place of the Monthly Economic Report said a strong final quarter (January-March) performance in FY23 pushed the GDP growth for the full year to 7.2 per cent, higher than the 7 per cent estimated in February.
“This upside to the growth estimate takes the growth momentum deep into the current year. Several forecasting agencies also share optimism as they revise their growth estimates for FY24 upwards,” it added.
However, the report didn't make any fresh growth forecast for FY24.
Growth estimates by macro-economic forecasting agencies vary between 6-6.5 per cent for the current financial year.
The report warned that the impending downside risks to India’s exports include the European Union’s introduction of the Carbon Border Adjustment Mechanism (CBAM); continued uncertainty about the Russia-Ukraine conflict; and polarisation risks arising out of the prevailing geo-political situation reflected in the possible adoption of trade-restrictive measures.
“Further, foreign direct investment flows may also be impacted by political distance more than geographical distance, as IMF research points out,” it added.
The finance ministry said investments in supply-side infrastructure raise the possibility that India can enjoy sustained economic growth longer than it has been able to in several decades.
“Nonetheless, it is no time to rest on laurels nor risk diluting the painstakingly and consciously achieved economic stability. If we are patient, the rising tide will lift all boats as it has begun to,” it noted.
The report said that FY23 has brought the economy to a touching distance of the quarterly output it would have otherwise achieved in the absence of the pandemic.
“Post pandemic quarterly trajectories of consumption and investment have already crossed their pre pandemic paths.”
The report noted that high-frequency indicators paint a healthy picture of the state of the economy.
“Urban demand conditions remain resilient, with higher growth in auto sales, fuel consumption and UPI transactions.
"Rural demand is also on its path to recovery with robust growth in two and three wheelers sales.
"While the GST collections and Purchasing Managers’ Index (PMI) for the manufacturing and services sector continue to expand, a surge in services exports and increase in remittances has helped narrow the current account deficit towards the end of FY23,” it added.
Strong balance sheets and digital advancements, the report mentioned, could lead to better credit decisions allowing India’s financial cycle to sustain for longer periods before encountering the challenge of bad debts.
“Despite unprecedented global challenges in the last few years coming on top of balance sheet troubles in Indian banking and non-financial corporate sectors, macroeconomic management has been stellar,” finmin said.
