India sees GDP growth slowing to 8-8.5% in 2022-23 as risks rise

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People wearing face masks crowd a railway station platform in Mumbai, India, on Monday. Associated Press

India has forecast its economy will grow 8 per cent to 8.5 per cent for the fiscal year starting in April, down from 9.2 per cent projected in the current year, as it fights a spike in COVID-19 cases and rising inflationary pressure.

At that pace, India’s economic growth next fiscal year will still be the fastest among major economies.

All macro indicators indicated Asia’s third-largest economy was well placed to face challenges, helped by improving farm and industrial output growth, the government’s annual economic survey said on Monday.

The report, tabled by finance minister Nirmala Sitharaman in parliament ahead of the annual budget on Tuesday, warned about risks from global inflation and pandemic-related disruptions.

“India does need to be wary of imported inflation, especially from elevated global energy prices,” said Sanjeev Sanyal, principal economic adviser at the finance ministry and the lead author of the report.

India, which meets nearly 80 per cent of its oil needs from imports, faces the risk that inflation will hit consumer demand as global crude prices hover near a 7-year high at more than $90 a barrel.

“The global environment still remains uncertain,” the report said citing planned withdrawal of monetary support by major central banks including the US Federal Reserve. Higher rates elsewhere could lead to capital outflows for India.

The growth projections assumed a normal rainfall and an orderly withdrawal of global liquidity by major central banks, the report said.

Private economists said the government and central bank would have to balance their efforts to support economic growth considering rising inflationary pressures and sluggish domestic demand.

“With the rising pressure to tighten the monetary stance, policymakers will have difficulty in calibrating policy choices to balance between growth and (price) stability objectives,” said Rumki Majumdar, economist at Deloitte India.

The report said the government had fiscal space to provide additional support if necessary, citing a 67% increase in revenue receipts during the April-November period from a year earlier.

India’s economy has been on the mend after the government lifted mobility measures in June to curb the spread of coronavirus, after contracting 7.3% in the previous fiscal year.

But after a surge in Omicron cases early this month, many private economists and the International Monetary Fund (IMF) have cut growth estimates to 9% from an initial 11% estimate.

The annual report, which presents a report card of India’s economic achievements and provides new estimates, has often missed targets.

Last year it forecast annual economic growth of 11 per cent, that was later revised down by the statistics ministry to 9.2 per cent, after economic activity was hit hard by the Omicron variant.

Private consumption, accounting for nearly 55 per cent of GDP, remains weak amid rising levels of household debt, while retail prices have soared since the coronavirus outbreak began in early 2020.

Indian shares rose on Monday after two weeks of heavy losses, as investors snapped up beaten-down technology stocks, with a slew of blue-chip earnings and the federal budget in focus.

The blue-chip NSE Nifty 50 index climbed 1.41 per cent to 17,342.7 by 0458 GMT, while the S&P BSE Sensex rose 1.41 per cent to 58,007.19. The indexes had dropped about 3 per cent each last week.

The Nifty IT index, which had fallen in eight of the last nine sessions amid a tech sell-off on US interest rate hike worries, climbed as much as 3.2 per cent on Monday.

“We are mostly mirroring the US market’s strong close on Friday, but sustaining those gains will be tough considering that we have the budget tomorrow. We think it would be prudent to limit positions,” said Ajit Mishra, vice president, research at Religare Broking.

Foreign investors have sold off heavily in the run-up to the budget on Tuesday, where analysts expect additional fiscal measures to boost demand amid a third wave of COVID-19 infections.

“As of now, indications are that we may see some more consolidation post the budget, as foreign investor data is not too encouraging,” said Mishra.

The Nifty was set to finish January slightly lower while the Sensex was headed for a 0.5 per cent drop, as losses seen in the last two weeks eclipsed sharp gains recorded in the beginning of the month.

Jefferies said valuations of Indian equities were still not in “the comfort zone” despite the recent correction driven by worries over the Federal Reserve tightening.

In early trading on Monday, India’s most valuable firm Reliance Industries, which had lost 5.7 per cent since reporting results earlier this month, rose as much as 2.6 per cent.

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