The Ukraine war was a big shock for the Indian economy in FY23.

Consequently, currencies, prices of commodities including crude, food and base metals shot up globally whose effects were visible through multi-decadal high inflation across the world including US and Europe.

At the start of FY23 CPI was at an eight-year high of 7.79 per cent. A series of rate hikes by RBI pushed inflation down to 5.7 per cent in March 2023.

Against this backdrop, higher than expected FY23 GDP print of 7.2 per cent is commendable.

Both exports and imports have increased in FY23 over FY22 but imports have clocked a relatively faster pace. The record trade deficit in merchandise was not driven by volume spike but value spike induced by the war in Ukraine. The net exports drag on GDP was neutralised by thrust in GDP due to private consumption and investments. Private final consumption expenditure (PFCE) has increased by 7.52 per cent over FY22. This is evident from the record gross GST collections of excess of ₹18-lakh crore with a monthly average of ₹1.5-lakh crore.

Since FY21, capital expenditure has been on the rise aligning with infrastructure needs which was captured in the National Infrastructure Pipeline. This has been witnessed in the declining revenue expenditure to capital outlay over the past years. In April-Feb 2023, the Centre’s capital expenditure was 21.7 per cent higher year-on-year while for states it is 11.9 per cent higher.

Gross fixed capital formation (GFCF), the expenditure component of GDP, captures the investment rate of the economy while the General Government header under GFCF captures capital expenditure of both Union and state governments. GFCF grew by 11.4 per cent y-o-y and its share in GDP increased from 28.9 per cent in FY22 to 29.2 per cent in FY23.

The high frequency indicators tractor sales, rabi production, PMI Manufacturing and rail freight traffic, PMI Services are higher than FY22 as well as pre-pandemic numbers.

Though manufacturing sector grew at a slow pace of 1.3 per cent, it is the services sector that gave fillip to growth. Construction grew by 10 per cent, Financial, Real Estate & Professional Services grew by 7.1 per cent and Public Administration, Defence & Other Services grew by 7.2 per cent. Trade, Hotels, Transport, Communication & Services related to Broadcasting grew at the fastest pace at 14 per cent. The commentariat has lauded the Modi government’s thrust on capital expenditure, excise duty cuts on petro products, fertiliser subsidy hike and curbs on foodgrain exports to soften prices. India’s FY23 growth, the fastest among large economies, is significant and bodes well for the future.

The writer is Economist & Columnist, and member of BJP

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