What Factors Influence India's Projected 6.5% Economic Growth in FY 2023-24?

Former NITI Aayog Vice-Chairman Rajiv Kumar expressed optimism about India's economic prospects, projecting a growth rate of approximately 6.5% for the current financial year. He attributed this positive outlook to a series of reforms undertaken by the Narendra Modi-led government over the past nine years. Kumar also emphasized the need for India to aim for an even higher growth rate of 8% to meet the aspirations of its young population and generate ample employment opportunities, in an interview with PTI.

Growth Trends and Projections

India's Gross Domestic Product (GDP) growth stood at 7.2% in the fiscal year 2022-23, a notable decrease from the impressive 9.1% growth recorded in the previous fiscal year. This slight dip in growth has led the Reserve Bank of India to project a 6.5% GDP growth rate for the ongoing fiscal year. Despite this moderation, Kumar remains confident in India's economic trajectory.

The Importance of 8% Growth

Kumar underlined the significance of aiming for 8% or higher economic growth. He argued that achieving this level of growth is vital to fulfilling the aspirations of the country's young population and ensuring there are sufficient job opportunities to harness India's demographic dividend effectively.

Positive Macroeconomic Indicators

Kumar pointed out several positive macroeconomic indicators that support his optimism. These include a manageable current account deficit, substantial foreign exchange reserves capable of covering approximately 11 months of imports, and a continuous inflow of foreign direct investment. On the domestic front, he highlighted a decreasing inflation rate and a remarkable 16% increase in government tax revenues compared to the previous year.

Fiscal Consolidation and International Recognition

Improvements in fiscal conditions have resulted in higher credit ratings from rating agencies. Notably, JP Morgan has included India in its international bond indices, reflecting growing confidence in the country's economic stability.

Challenges in Private Corporate Investment

While the overall economic outlook appears positive, Kumar acknowledged that private corporate investment has not responded as expected. Nevertheless, he observed a positive development in the form of increased bank credit growth over the past six months. This suggests that despite initial reluctance, businesses may be warming up to the idea of investing in the Indian economy.

Concerns Over Declining Exports

Kumar expressed concern over the decline in India's exports between April and August, which amounted to approximately 11% when compared to the same period the previous year. He attributed this decline to the global trade environment's weakness, particularly in Europe, the US, and other developed economies. To counter this trend, he stressed the need for India to explore ways to enhance its share in the world export market.

Debate Over GDP Measurement

One of the ongoing debates in India's economic landscape pertains to the method used to measure GDP. Some economists argue that the GDP deflator should incorporate the Consumer Price Index (CPI) instead of the Wholesale Price Index (WPI). Kumar emphasized the importance of establishing a firm position on this matter to ensure the accuracy and reliability of economic data.

Recent GDP Growth Data

According to recent data, India's real GDP growth for the first quarter of the fiscal year 2023-24 was 7.8% on a year-on-year basis, as measured by the Income or Production Approach.

Differing Opinions on GDP Calculation

The debate over GDP measurement has gained prominence in recent months. Former chief economic advisor Arvind Subramanian has argued that India's GDP measurement primarily focuses on the income side and may lead to an overestimation of economic growth. In contrast, chief economic advisor V Anantha Nageswaran defended the credibility of the GDP data, citing instances where critics had accepted it as credible when it aligned with their narrative.