FinMin hopeful of consumption, private investment picking up

A Finance Ministry report on Thursday expressed optimism that private investment will pick up. It also said that within a year, the Indian economy is set to turn around the worst contraction it experienced into the fastest growing large economies in the world.

The remarks follow the Union Budget presented a fortnight ago where the FM estimated that nominal GDP growth rate could be 11.1 per cent in FY23. Adjusting for inflation, the real growth rate is expected to be 8 per cent. RBI has projected a real growth rate of 7.8 per cent while the International Monetary Fund (IMF) expects growth to be 9 per cent. The Budget also provided for an increase of over 34 per cent in capital expenditure to over ₹7.5-lakh crore.

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A report by the Economic Affairs Department of the Finance Ministry noted in IMF’s latest update, the multilateral agency lowered its global growth estimate for 2022. India is the only large and major country listed by the IMF whose growth projection has been revised upwards in 2022 (read 2022-23).

“In a testimony to the resilience of its people and the farsightedness of its policymaking, the Indian economy that contracted by 6.6 per cent in 2020-21 is now projected to grow the quickest among the league of large nations in 2022-23,” it said.

Union Budget measures

The report also highlighted various measures taken in the Budget which could boost demand and private sector investment.

“Once the uncertainty and anxiety caused by the Covid-19 virus recedes from people’s minds, consumption will pick up and the demand revival will then facilitate the private sector stepping in with investments to augment production to meet rising demand. Barring external shocks – geo-political and economic – this scenario should play out for the Indian economy in 2022-23,” it said.

Further, “Union Budget 2022-23 commitments towards asset creation (public infrastructure development) will invigorate the virtuous cycle of investment and crowd in private investment with large multiplier effects which, in turn, will augment inclusive and sustainable growth,” it said.

The report claimed that overall economic activity remained resilient amid the third wave of Covid-19 as India has learnt to move on with virus-based constraints. This is reflected in robust performance of several high frequency indicators like power consumption, PMI manufacturing, exports, e-way bill generation. Rapid pace of vaccination has further bolstered the confidence within the economy.

High retail inflation

The report did take note of 6 per cent plus retail inflation in the month of January and expressed optimism but with caution.

It said that going forward, easing vegetable prices on account of fresh winter crop and better prospects for food grain production are contributing to an optimistic view on inflation.

However, “given that the categories bearing the brunt of imported inflation are edible oils and crude oil, it will be important to monitor the multi-round effects such imported inflation may have on the value chain, as also the transmission of input cost pressures to final selling prices, which is currently weak as is evident from the large gap between WPI and CPI inflation,” it said.

The February MPC meeting retains inflation projection for 2021-22 at 5.3 per cent, bringing it slightly down to 4.5 per cent in 2022-23

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