Nominal GDP projection of 11.1% for FY23: bet on growth, beware of “disruptions”
Even though the Economic Survey relied on Real GDP growth of 8-8.5% for FY23Finance Minister Nirmala Sitharaman has projected nominal GDP growth of 11.1%, implying a real growth rate of around 7% (at the RBI’s 4% inflation target).
The Ministry of Finance’s growth rate projection is lower because it took into account Omicron’s impact on economic activity.
“We had a very difficult job of estimating nominal GDP. The survey gave the real GDP estimate at 8-8.5 percent. The first difficulty we have is that the current year GDP that we pulled from the first advance estimate from the ONS which arrived on January 7, is essentially an estimate that is pre-omicron in its construction. .they didn’t have the omicron tendencies with them,” said TV Somanathan, Finance Secretary of the Ministry of Finance.
There could, however, be a downward revision to this projection as the government has stated that this GDP growth has been projected on the assumption that “the year ahead will see no pandemic-induced disruptions to activity. economy and the withdrawal of liquidity from domestic and global markets will be ordered,” the budget document states.
The government is optimistic about this growth rate as it believes there has been a rebound in several high-frequency indicators, an upturn in economic activity and will be supported by rapid progress in vaccination coverage.
Estimating nominal GDP growth at 11.1%, the government said key indicators of economic activity confirmed the strengthened momentum of India’s economic recovery. He said, however, that “the recent spike in Omicron infections and global inflation due to persistent supply bottlenecks continue to pose challenges to the pace of recovery,” the document said.
As for inflation, it has increased over the past year. While during the period from April to December 2021, the retail inflation rate moderated to 5.2% in 2021-22 (April-December) from 6.6% during the period corresponding to last year, the wholesale price index (WPI) jumped 12.5. % in April-December and stood at 13.6% in December 2021. Previously, the WPI fell from 4.3% in 2018-2019 to 1.3% in 2020-21.
Even as inflation concerns weigh heavily on the economy, experts say the budget has created several tailwinds to boost the economy’s growth. “By dramatically increasing capital expenditure, particularly in infrastructure segments such as roads, railways, solar modules and affordable housing, it hopes to trigger multiplier effects and attract private sector investment in the construction, cement, steel and capital goods,” Gurpreet said. Chhatwal, MD, Crisil.
According to the first advance estimates of annual national income released by the Office of National Statistics (ONS), India’s real GDP is expected to expand by 9.2% in 2021-22, compared to a contraction of 7.3% in 2020. -21. It is further supported by the strong rebound seen in several high-frequency indicators in Q3:2021-22 and rapid progress in vaccination coverage.
Even on the demand side, the recovery has been broad-based. According to the government’s assessment, while investment and exports have achieved a more than full recovery to the corresponding pre-pandemic levels of 2019-20, private consumption has also improved to recover 97.1% of the corresponding pre-pandemic levels. and fully recovers in the second half of the 2021-22 financial year.
Meanwhile, the government expects private consumption expenditure to grow by 6.9% in 2021-22 from a contraction of 9.1% in 2020-21 and fixed investment to increase by 15% in 2021. -22 against a contraction of 10.8%. percent in 2020-21.
In addition, government consumer spending is expected to grow by 7.6% in 2021-22 from 2.9% in 2020-21. Exports and imports of goods and services should increase by 16.5% and 29.4% (at constant rates). price) respectively in 2021-22.