GDP may surpass estimates

Article By

V.P. Nandakumar,

MD & CEO, Manappuram Finance Ltd

The recent uptick in most macro-indicators point to a spurt in economic expansion that may beat forecast and expectations. While IMF has revised India’s GDP growth to 6.3%, RBI is sticking to its forecast of 6.5% 

The Indian economy is most likely to spring a surprise on the upside with the GDP growth beating the Reserve Bank of India’s forecast of 6.5% for the fiscal 2023-24. This is mirrored in the recent upward revision in India’s GDP growth by IMF despite lowering the growth projections for the world economy for the current fiscal. To me, the base case scenario for India’s GDP topping the 6.5% mark looks plausible since the domestic macro-economic constructs are looking upbeat. This is borne out of the fact that the GDP expansion in the past few quarters remains well above the historic trend line. And inflation easing consistently month-on-month adds credence to this belief. Though higher-for-longer interest rate inflates the cost of capital, the balance sheets of both financial and non-financial corporates never looked healthier than now is another reason for my optimism.

Let me make my case for the higher-than-expected GDP growth one by one. First and foremost, the synchronised and calibrated policy actions by the fiscal and monetary authorities should be credited for the better-than-expected GDP expansion for the current fiscal. Both the Government and the RBI are on the same page when it comes to aligning inflation to the targeted 4%. While, on its part, the Government has maintained its flexibility in reducing taxes of the key petroleum products whenever it found it necessary, the Central Bank has never let down its guard against fighting inflation while ensuring adequate systemic liquidity. This is a major learning for the policy makers in other countries where the belief that a recession is necessary for taming inflation has become almost a dogma. Since I don’t want to sit on judgement about the merits or demerits of other countries’ policy actions, I am deliberately avoiding any references or analogies.

Having said that, what makes me confident in saying that the Indian economy is likely to expand at a faster clip than the forecast is the results of the recently released forward looking survey published by the RBI. The survey results unequivocally underscore the growing confidence of various stakeholders in the Indian economy, which remained highly resilient amidst back-to-back global, financial and geo-political shocks. The survey results reveal that consumer confidence has reverted to its recovery path after a brief pause in July with the Current Situation Index (CSI) reaching a four-year high on the back of respondents’ better assessment of current general economic situation and employment conditions in September. To me, these findings are revealing since they will add colour to the consumption theme and it is quite reasonable to assume that the private final consumption, which accounts for over 60% of the economic expansion, will keep growing in the remaining months of the current fiscal. Remember, consumption is the bedrock on which the great `India Growth Story’ has been built.

Further, general economic outlook as well as the prospects for employment, income and spending are expected to improve further over the next one year with the Future Expectations Index (FEI) reaching a four-year high. Above all, as the findings of the survey show that households remain highly optimistic about the future earnings even though their sentiment on current earnings has remained flat. Also important is the outlook on inflationary expectations by the respondents who say the price level will moderate going forward.  Indeed, oil prices remain a wild card given the rising geo-political tensions. According to the forecast by the International Energy Agency, crude prices are unlikely to breach the red line of $100 a barrel level in the current fiscal.

One should also take into account the massive infrastructure spending by the Government which will have a multiplier effect on other sectors since infrastructure has the highest forward and backward linkages with other productive sectors of the economy. The recent pick up in private sector capital spending and robust credit growth are also supportive for the higher-than-expected economic growth thesis this fiscal.

To me, these are necessary and sufficient conditions for the Indian economy to surpass the estimates and clock a world beating and record-breaking GDP expansion in the current fiscal.

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