Despite a robust 8.2 per cent GDP growth in the previous fiscal year, the Economic Survey for 2023-24 has conservatively forecast current fiscal economic growth at 6.5-7 per cent. 

The Finance Ministry has opted for a conservative forecast in the latest Economic Survey 2023-24 although market was expecting a much higher growth number.

“The Survey conservatively projects a real GDP growth of 6.5-7 per cent, with risks evenly balanced, cognisant of the fact that the market expectations are on the higher side”, said the 522-page document, supervised by the Anantha Nageswaran, Chief Economic Advisor to the Finance Ministry. 

Meanwhile, explaining the rationale behind the move to put out a conservative GDP growth forecast, Anantha Nageswaran, CEA, said at a press conference later in the afternoon, “We are not pessimistic. We are actually very optimistic about growth. We are also mindful of the challenges. ..The way monsoon has progressed and rising global financial markets…such risks.

Since January (interim budget) where we were more confident about a 7 per cent growth, the global economy has become even more polarised. Financial market valuations are now elevated. Given that we still feel 7 per cent is doable, but yet we want to be not necessarily cautious but somewhat prudent in projecting. We would rather be pleasantly surprised than being disappointed. That is why we are projecting 6.5-7 per cent”.

Noting that inflation is under control and the economy is on a strong wicket, the Economic Survey — tabled in the Lok Sabha by Nirmala Sitharaman on Monday — highlighted that the Government’s thrust on capex and sustained momentum in private investment has boosted capital formation growth. 

However, private capital formation after good growth in the last three years may turn slightly more cautious, the Survey warned.

The latest Finance Ministry growth projection is lower than the 7.2 per cent GDP growth forecast of the Reserve Bank of India (RBI). In June, the RBI had raised the GDP growth forecast for 2024-24 from the earlier 7 per cent to 7.2 per cent. 

In fact, in the interim budget in January this year, the Finance Ministry had in a report pegged the growth estimate for 2024-25 at close to 7 per cent.

The growth estimated by the Economic Survey, released a day before the first full comprehensive budget is presented by the new NDA government, is almost in line with IMF’s recent 7 per cent estimate for the current fiscal. 

The Economic Survey is a crucial document as it details the State of the Economy, prospects and policy challenges.

Noting that the Indian economy has recovered and expanded in an orderly fashion post pandemic, the Survey highlighted that real GDP in 2023-24 was 20 per cent higher than its level in 2019-20, a feat only a very few major economies achieved. 

On fiscal consolidation, the Survey sees the fiscal deficit coming down to 4.5 per cent of GDP or lower by FY2025-26.

DELAYED ANTICIPATED EASING

On inflation outlook, the Economic Survey said that the short-term inflation outlook for India is benign. However, from the angle of long-term price stability, several options need to be further explored, including expediting the revision of consumer price index with fresh weights and item baskets.

Despite the core inflation rate being around 3 per cent, the RBI, with one eye on the withdrawal of accommodation and another on the US Fed, has kept interest rates unchanged for “quite some time, and the anticipated easing has been delayed,” the Survey highlighted.

With an eye on rising food inflation, the RBI has kept policy rates unchanged at 6.5 per cent for eight successive review meetings. 

AMRIT KAAL GROWTH STRATEGY

The Finance Ministry has in the Survey outlined a growth strategy for the Amrit Kaal, focusing on the six critical areas of boosting private investment; expanding MSMEs; Agriculture as a growth engine; green transition financing; bridging the education-employment gap and building State capacity and capability.

CENTRAL BANKS’ RATE CUTS

The Economic Survey highlighted that Inflationary pressures have moderated in most economies with declining global commodity prices and easing of supply chain pressures. However, core inflation remains sticky and driven by high service inflation.

The ECB has already cut the policy rate, while the Fed has hinted at reducing the rate in 2024. If the services inflation across economies moderates faster, that may allow central banks to bring forward the monetary policy easing cycle earlier than currently anticipated. A likely reduction in policy rates by central banks of AEs, especially the Fed, will open the space for central banks of EMEs to follow the lead, bringing down the cost of capital., the Survey has said.

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