Budget 2022: Eco Survey growth estimates conservative, India can surprise, say experts

The Economic Survey 2021-22’s GDP growth projection of 8-8.5% for FY23 is quite conservative and India can surprise with higher growth if all positive factors fall in place, feel experts and economists.

The survey is optimistic on the medium-term prospects due to infrastructure capex focus of the government and supply-side reforms and with a nudge from government’s infrastructure investments and the Production Linked Incentive Scheme (PLI) scheme. Private investments will also revive gradually, says Dharmakirti Joshi, chief economist, CRISIL Research. "However, there are downside risks to the growth outlook of 8-8.5% largely from external factors – high crude prices and reversal of monetary policy by systemically important central banks."

“While the 8-8.5% GDP projections for FY23 are on the back of a high base of 9.2% in the current financial year, the Indian economic growth can surprise us on the higher side. Even as the pandemic is still raging in most parts of the world, its latest variant is less damaging; besides with 75% of eligible Indians fully vaccinated and the booster doses being rolled out, India would be far better prepared to take on the challenges,'' says Deepak Sood, Secretary General of industry association ASSOCHAM.

“The Economic Survey’s GDP growth projection for FY23 is quite conservative and lower than that projected by the IMF. The Economic Survey has explained in detail the government’s approach to handling this once-in-a-century pandemic-induced crisis and talks in detail about the ‘agile’ approach that the government has been adopting, which basically implies tracking closely the high frequency economic indicators and tweaking the government’s response on a real-time basis as the crisis situation unfolds," says Rajani Sinha, chief economist and national director of Research, Knight Frank India.

The Eco Survey reckons that the upcoming budget faces acute policy trade-offs between nurturing a nascent growth recovery and diminishing fiscal space with challenging debt dynamics. Policymakers should ensure the fiscal impulse is maximised to improve potential growth, while signalling adherence to medium-term fiscal sustainability, says Madhavi Arora, lead economist, Emkay Global Financial Services. "This entails continued financial sector reforms, better resource allocation, and funding by aggressive asset sales via functional infrastructure monetisation, divestment/strategic sales," she adds.

“The 2022 Economic Survey infuses optimism for what lies ahead. The projection of 8-8.5% GDP growth for fiscal 2022-23 will be led by supply-side reforms and easing of regulations," says Ramesh Nair, CEO, India and managing director, Market Development, Asia, Colliers.

Overall, the economy and finances show an encouraging trend, as is borne out by the estimated FY 2021-22 growth rate of 9.2%, while managing to limit the fiscal deficit to target levels of 6.8%, says Arindam Guha, partner & leader, Government & Public Services, Deloitte India. One of the key factors contributing to the GDP growth has been high government consumption which grew at 7.6% in real terms during FY 2021-22. Gross Fixed Capital Formation also increased by 6.9% during the year – here again government spending on infrastructure has been the key driver as highlighted by the Economic Survey, he notes.

"The concern remains that private consumption spending remains at 97% of pre-pandemic levels. Similarly, the survey also acknowledges that private investment recovery is still at its nascent stage. To make the economic growth sustainable, it is critical that these two components pick up and Budget 2022-23 may have these as key focus areas," adds Arindam Guha.

Rajani Sinha of Knight Frank India notes that the survey very aptly talks in detail about the developments on social parameters of health and education. "The Economic survey has very aptly discussed in detail the current issues for the Indian economy, now the critical aspect would be how the central and state governments handle many of these issues going forward."

Madhavi Arora of Emkay Global notes that the survey sees India’s GDP to grow 8-8.5% in FY23 after 9.25 in FY22, led by widespread vaccine coverage, gains from supply-side reforms and easing of regulations, robust export growth, and availability of fiscal space to ramp up capital spending. "However, the baseline assumption is stable global financial markets with orderly G-4 policy normalisation and a well behaved oil market (US$70-$75/bbl), and easing global supply chain disruptions," she says.

ASSOCHAM's Deepak Sood observes that the advance estimates suggest manufacturing to be growing by 12.5% in the current fiscal while services would expand by 8.5%. ''Traditionally, services grow at a faster face. Clearly the Covid impact on contact intensive industries is reflecting even as the manufacturing has been aided by supply side reforms. Once the impact of the PLI scheme kicks in, we expect the manufacturing to be leading the growth for the foreseeable future."

The survey spells out that rising capital expenditure by the government on infrastructure and an uptick in the housing cycle has been responsible for reviving the construction sector, says Ramesh Nair of Colliers. "This has resulted in the consumption and production of steel and cement consumption to reach pre-Covid levels. We expect Budget 2022-2023 to announce reforms and incentives that will continue to boost consumer spending and thus aid in the overall revival of the real estate sector,” he says.

Dharmakirti Joshi of CRISIL Research says the survey highlights the strong external position with the current account deficit under check and low levels of short-term external debt. "This has made India a bit more resilient to Fed actions than during 2013-14. But any further surprises from the Fed can create volatility in an environment of rising crude prices and heightened geopolitical risks. The survey rightly flags risks to inflation, which if they play out, can lead to faster normalisation of monetary policy," says the economist.