By Nantoo Banerjee
India’s Economic Survey 2022 presented in Parliament on Monday somewhat lacks credibility when it comes to the GDP growth forecast of 8.0-8.5 for the coming financial year with certain riders. The projection is based on the assumption “that there will be no further debilitating pandemic related economic disruption, monsoon will be normal, withdrawal of global liquidity by major central banks will be broadly orderly, oil prices will be in the range of US$70-$75/bbl, and global supply chain disruptions will steadily ease over the course of the year.”
Although it is too early to assess the behaviour of the Covid-19 related pandemic and monsoon, the oil prices have already exceeded the government’s expected range of US$70-$75 range by 20 percent and it is forecast to go up beyond $100 per barrel by 2023. The government economists, responsible for the preparation, seemed to have missed this vital global development among others. It is possible that the survey at least three months ago. This appears to be the biggest flaw of the Economic Survey 2022. The absence of the chief economic advisor may have been a reason.
The economic growth forecast for 2022-23 seems to have also ignored the views on global GDP growth prospects by IMF and World Bank. “The global economy enters 2022 in a weaker position than previously expected,” reported the International Monetary Fund (IMF) in its latest World Economic Outlook Update. As a result, the IMF revised down its growth estimate to 4.4 percent in 2022—half a percentage point lower than in the October World Economic Outlook (WEO).
The downward revision largely reflects forecast markdowns in the two largest economies—the United States and China, the IMF said. The US and China are the world’s two largest economies by GDP. India ranks 7th with its GDP estimated at $272 trillion. India’s Economic Survey 22 also expects that “global supply chain disruptions will steadily ease” over the course of 2023. It does not talk much on possible inflation. The IMF, however, holds a different view. It says: “Rising energy prices and supply disruptions have resulted in higher and more broad-based inflation than anticipated, notably in the United States and many emerging market and developing economies.”
The economic perceptions of India’s government economists for 2023 seem to be at variance with the global views. The global economic growth is expected to slow to 3.8 percent, next year. Although this is 0.2 percentage points higher than in the previous forecast, the upgrade largely reflects a mechanical pickup after current drags on growth dissipate in the second half of 2022. Unsurprisingly, the IMF forecast is conditional on most countries overcoming the pandemic by end-2022, and no new variants necessitating large-scale mobility restrictions or lockdowns. “Elevated inflation is expected to persist for longer than envisioned in the October WEO, with ongoing supply chain disruptions and high energy prices continuing in 2022,” the IMF noted.
The World Bank also cautioned of decelerating global growth in 2022 and 2023, “as pent-up demand dissipates and as fiscal and monetary support is unwound across the world.” “Global macroeconomic developments and commodity supply factors will likely cause boom-bust cycles to continue in commodity markets,” the World Bank said in its Global Economic Prospects report. Slowing economic growth could begin to drag down demand for commodities in 2023. Despite the expected global growth slowdown over the coming months, prices of commodities could continue rising in the short term.
However, it must be said that Indian economy has always shown the capacity to fight the odds to grow despite massive doles traditionally given by the government to the underprivileged section, agriculture and small and micro producers and traders. The Economic Survey 2022 is absolutely right to note that India has fiscal space to ramp up capital expenditure (Capex). The survey expects Capex and exports to be growth drivers for FY23. It was encouraging to note that agricultural growth for FY22 at around 3.9 percent and Industrial growth at 11.8 percent.
Total Consumption is estimated to have grown by 7.0 per cent in 2021-22 with significant contributions from government spending. Indian economy is estimated to grow by 9.2 percent in real terms in 2021-22 (as per the First Advance Estimates), after a contraction of 7.3 percent in 2020-21. Growth in 2022-23 will be supported by widespread vaccine coverage, gains from supply-side reforms and easing of regulations, robust export growth, and availability of fiscal space to ramp up capital spending.
The Economic Survey notes that services sector has been the hardest hit by the pandemic, especially segments that involve human contact. This sector is estimated to grow by 8.2 per cent this financial year following last year’s 8.4 per cent contraction. With the vaccination programme having covered the bulk of the population, economic momentum building back and the likely long-term benefits of supply-side reforms in the pipeline, the Indian economy is in a good position to witness GDP growth of 8.0-8.5 per cent in 2022-23, it said. Startups in India have grown remarkably over the last six years. The number of new recognised startups have increased to over 14,000 in 2021-22 from only 733 in 2016-17. As a result, India has become the third largest startup ecosystem in the world after the US and China. Further, a record 44 Indian startups have achieved unicorn status in 2021 taking the overall tally of unicorns in India to 83, most of these are in the services sector. (IPA Service)