India’s economic growth in the next fiscal will likely exceed the International Monetary Fund’s (IMF) projection of 6.1%, supported by enhanced capital formation, chief economic advisor (CEA) V Anantha Nageswaran said on Monday. The CEA also stressed the need for fiscal consolidation in the Asia-Pacific region to reduce already-elevated inflationary pressure, as the preparations for Budget FY24 is underway in the finance ministry.
Retail inflation in India hit a five-month high of 7.41% in September. It exceeded the upper band of the Reserve Bank of India’s (RBI) medium-term target of 2-6% for a ninth straight month through September.
The country’s public digital infrastructure, said the CEA, has probably crossed an inflection point and that it will contribute to the formalisation of the economy, in addition to growth. So, maybe, there could be a 0.5-0.8% addition to the baseline growth number of 6%, he added.
The IMF recently slashed its FY23 growth projection for India by 60 basis points from its July forecast to 6.8%, its steepest cut for any major economy barring the US. However, it retained its FY24 forecast for the country.
Of course, India’s growth rates for this fiscal and the next, as predicted by the IMF, would still be way above the agency’s projected global economic expansion rates of 3.2% and 2.7%, respectively.
“I think, in fact, the growth rates for the coming years may be slightly more, slightly better than what these numbers are, because I think there is a possibility that India’s capital formation cycle will do better after one decade of retrenchment,” he said.
Asset monetisation, the CEA said, is one of the “best policies to ensure that fiscal debt comes down” and India’s debt sustainability isn’t a matter of concern.
Nageswaran was speaking at a panel discussion organised by the National Council of Applied Economic Research (NCAER) and the IMF.
Earlier this month, the IMF projected India’s debt ratio at 84% of its GDP by the end of 2022. This is higher than many emerging economies, but the debt is a little bit easier to sustain, it had said.
Speaking on the occasion, Krishna Srinivasan, director of the IMF’s Asia-Pacific department, noted the large medium-term output losses averaging 9% for the region from “pandemic scarring”.
“While there is no panacea for productivity losses due to pandemic scarring, digital technologies can increase efficiency, deepen financial inclusion, and open new markets,” he added.
Rakesh Mohan, former deputy governor of the RBI, warned that while India is on the right track in reducing debt levels, it should not be complacent about financial repression. Inflation expectations need to be anchored, he added.
Of course, despite the elevated price pressure, inflation in India is way below that in several advanced economies, including the US and the UK.
NCAER director general Poonam Gupta stressed the need for appropriate fiscal adjustment. She said, “Debt may decline very slowly over the next five years and macro shocks can change the trajectory.”
Sonal Varma, chief economist (India and Asia ex-Japan) at Nomura, said, “Central banks will bring down inflation even if it leads to recession but Asia is relatively better placed than other economies. As far as India is concerned, an export slowdown will lead to moderation in demand.”
