The first advance estimates (FAE) for growth in FY23 serve to highlight both the strengths and concerns of the Indian economy. It underscores how India has been a resilient outlier in a global economy hit by Ukraine-war headwinds, while also being shackled by the same forces. It is to be noted that while the FAEs are subject to constant revision, they provide some insights into the thrust that the Budget and monetary policy should adopt for FY24.

The NSO has projected a GDP growth rate of 7 per cent for FY23, extrapolating from high frequency indicators. This is higher than the RBI’s recent projection of 6.8 per cent for the current fiscal, with Q3 and Q4 growth pegged at 4.4 per cent and 4.2 per cent, respectively. The FAE points to private final consumption growing at 7.7 per cent, against 7.9 per cent in FY22, while gross fixed capital formation growth at 11.7 per cent for FY23, is about 400 basis points lower than in FY22. Government spending is expected to grow 3.1 per cent this year, against 2.5 per cent last year. The last, per se, may not throw the fiscal deficit off-course, as the nominal GDP is expected to grow at 15.4 per cent (thanks to a GDP deflator of over 8 per cent, owing to wholesale price inflation), against the FY23 Budget’s estimate of 11.1 per cent.

While the economy has comfortably surpassed its pre-pandemic level, there are straws of concern in the wind. The RBI, in its December Bulletin, has observed: “The outlook for private consumption and investment is looking up, although relatively higher inflation in rural areas is muting spending in those regions.” While pent-up demand has lifted the fortunes of contact-intensive services, the Bulletin refers to “festive fatigue” in rural demand in Q3, borne out by the flat trend in NSO consumption projections. Given the slow pick-up of consumption and investment, an expansionary FY24 Budget may be required. While nominal growth is expected to be off the highs of FY23, a rise in corporate profits as a result of lower inflation and better consumer sentiment could keep the fisc on track.

On the supply side, agriculture and services have been the mainstay. However, manufacturing growth of 1.6 per cent this year, with utilities lifting overall industrial growth to above 4 per cent, remains a concern. While this is a product of war-induced supply shocks, it is possible that interest rate hikes and indifferent demand signals in some sectors of the economy have added to the problems. It cannot help industry’s cause that exports have been hit by a squeeze in global demand. The Budget must address short-term concerns that plague industry, while also considering a plan to promote employment. Signals on both supply and demand fronts remain ambivalent at present. With supply-induced inflation receding from the highs of mid-2022, growth deserves monetary policy attention as well.