In economics, trend is a good friend. But the series of global macro economic shocks toppled the trendline pattern of all economic indicators, sparing none.
Foremost among all is India’s GDP growth rate. Just until recently, the sustainable 7 per cent real GDP growth rate appeared within reach. But the Economic Survey 2023 dashed all hopes projecting an average 6.5 per cent annual growth in the medium-term, which could be 5-7 years from FY24.
The estimate is, however, not cast in stone. As Chief Economic Adviser (CEA) Dr V Anantha Nageswaran indicated, India’s growth potential is pegged at 7-8per cent, which is slightly below the pre-pandemic level of over 8-8.5per cent.
While a potential GDP of 7-8 per cent is enviable enough, given that the world economy is slowing down, what’s disappointing though is the average of 6.5 per cent projection. Prof Anil K Sood says, at this rate, it’ll take about 11 years to double our USD 3.5 trillion economy! Put another way, to reach the $5 trillion target by, say 2028 (considering the two years lost due to the pandemic), needs nothing less than a magic carpet ride.
But then, averages are often a trap and growth numbers can run both ways, upside or downward. So, Nageswaran, with hope in heart and reliance on reforms, believes that we can haul in more than the projected 6.5 per cent growth rate every year. As the CEA noted, financial and corporate sector balance sheets are fit for growth, and importantly, there’s a willingness to borrow and lend. Besides, the higher economic efficiencies from the public digital infrastructure created over the last 6-7 years are expected to add 30- 50 bps to the potential GDP growth.
“That’s why, my own personal estimate is that we can achieve an average 6.5-7 per cent growth, higher than the headline 6-6.5 per cent projection,” he said on Tuesday. Even as India’s retains its bright spot, global economic challenges could spell trouble. Particularly, as the impact of monetary tightening is beginning to show in slowing economic activity, especially in advanced economies, while the adverse spillovers due to supply chains shocks continue to affect trade.
The other factor that’s also somewhat unsettling is the projected nominal growth rate of 11per cent for FY24, down from 15.4 per cent in FY23, which means inflation may remain elevated at over 5 per cent next financial year and confirms that price rises are often swift, but moderation in prices will be gradual. Given the rising interest rates, it’s over to Finance Minister Nirmala Sitharaman to ensure that borrowings remains at acceptable levels, as higher debt translates to even higher interest rates.
Facts and figures
India’s growth potential pegged at 7-8per cent, slightly below pre-pandemic level of over 8-8.5 per cent
At this rate, it’ll take about 11 years to double our USD 3.5 trillion economy
Inflation may remain elevated at over 5 per cent next fiscal
Real GDP: 6.5-7 per cent
Nominal GDP: 11 per cent