The fear of a global recession has increased and it is likely to impact India’s global export outlook, said a Finance Ministry report on Thursday. Still, India’s overall growth will get impetus from other developments.

India’s exports contracted 16.6 per cent in October to $29.78 billion for the first time this fiscal. “A rapid deterioration in global growth prospects, coupled with high inflation and worsening financial conditions, has increased fears of an impending global recession. Global slowdown may dampen India’s exports businesses outlook; however, resilient domestic demand, a re-invigorated investment cycle along with strengthened financial system and structural reforms will provide impetus to economic growth going forward,” the report prepared by the Economic Affairs Department of the Finance Ministry said.

Moody’s forecast

Various agencies have cut down the projected growth rate for India. GDP growth rate estimate is between 5.9 per cent and 7 per cent. On Thursday, Moody’s Analytics said India is headed for slower growth next year more in line with its long-term potential. On the upside, inward investment and productivity gains in technology as well as agriculture could accelerate growth. But, if high inflation persists, the Reserve Bank of India may take its repo rate well above 6 per cent, causing GDP growth to falter.

Various agencies have cut down the projected growth rate for India

Various agencies have cut down the projected growth rate for India | Photo Credit: bakhtiar_zein

However, the Finance Ministry report was still optimistic and listed seven reasons for the same. In a world where monetary tightening has weakened growth prospects, India appears well-placed to grow at a moderately brisk rate in the coming years on account of the priority it accorded for macroeconomic stability, it said. As the private sector — financial and non-financial — was repairing balance sheets, capital formation suffered. The financial system stress in the second decade of the millennium, a consequence of the lending boom witnessed in the first decade-plus, is now behind us, said the report.

It said private sector balance sheets are healthy and incipient signs of a new personal sector capital formation cycle are visible. But, more importantly, when the private sector turned cautious due to its balance sheet stress, the government raised capital expenditure substantially. Budgeted capital expenditure rose 2.8x in the last seven years. Additionally, it undertook structural reforms such as the introduction of the Goods and Services Tax and the Insolvency and Bankruptcy code.

The government dealt with challenges on the external security front firmly. It facilitated the emergence of an affordable and advanced public digital infrastructure, enabling the increasing formalisation of the Indian economy and widening the tax base, among other benefits. Finally, it used fiscal and monetary resources prudently during the pandemic to provide targeted relief to the needy segments of the population.

Further upside

“Continued macroeconomic stability, of which fiscal prudence is a part of, and execution of various path-breaking policies such as Gati Shakti, National Logistics Policy and the Production-Linked Incentive schemes to boost the manufacturing share of employment lend further upside to India’s growth prospects,” the report concluded.