India will sustain its growth in a more durable way than before, a report by Finance Ministry said on Thursday. The report, however, cautioned about headwinds that could pose challenges if they are overlooked.

Indian economy grew by 7.2 per cent in FY23 and the upward movement in January-March quarter played a major role in the overall growth.

“This upside to the growth estimate takes the growth momentum deep into the current year,” said the Annual Economic Review, prepared by Economic Affairs Department of the Finance Ministry.

It further said that several forecasting agencies share similar optimism as they revise their growth estimates for FY24 upwards.

Fitch Ratings raised its forecast for Indian economic growth to 6.3 per cent for the current fiscal year from its estimate of 6 per cent.

Similarly, S&P Global Ratings has retained India’s economic growth for FY24 at 6 per cent. The rating agency has pegged the country’s GDP at 6.9 per cent in FY25. In its recent report, RBI has pegged the growth estimate at 6.5 per cent for FY24.

Taking cue from various high frequency economic indicators such as Manufacturing PMI at 57.8, Services PMI at 58.5, GST collection at ₹1.61-lakh crore, the report said, “The Indian economy has carried the momentum from FY23 into the current fiscal year.”

Global activity

On the global front, the uptick in economic activity during the first quarter of 2023 has continued in the second quarter as well, as evident in the expansion of the global Composite PMI.

According to the report, the strength of domestic demand has fuelled the growth.

“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,” it said.

Despite weak global demand, and thus, low net exports, the report said that pre-and post-pandemic trajectories of real GDP will converge once the external demand picks up pace.

The report listed escalation of geopolitical stress, enhanced volatility in global financial systems, sharp price correction in global stock markets, high magnitude of El-Nino impact, modest trade activity and FDI inflows owing to frail global demand as some of the headwinds.

“Should these developments deepen and dampen growth in the subsequent quarters, the external sector may challenge India’s growth outlook for FY24,” it said.

The report noted that India’s macroeconomic management has been stellar despite unprecedented global challenges in the last few years and balance sheet troubles in the country’s banking and non-financial corporate sectors.

Infra investments

Investments in supply-side infrastructure will help in achieving sustained economic growth, it added.

“Strong balance sheets and digital advancements could lead to better credit decisions allowing India’s financial cycle to sustain for longer periods before encountering the challenge of bad debts. Thus, India appears poised to sustain its growth in a more durable way than before. 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,” the report concluded.

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