Despite external headwinds, the Indian economy is estimated to grow at 7% in the financial year 2022-2023 and inflation is likely to remain in the range of 5-6%, with risks evenly balanced, the finance ministry said in its latest monthly economic report.

"Real GDP estimates for Q3 of 2022-23 reaffirm the ability of the Indian economy to grow on the strength of its domestic demand even as a rise in global uncertainties slow output," says the report released on March 20, 2023.

The ministry says while the GDP growth figure for Q3 FY23 of 4.4% is lower than that of 6.3% in Q2 FY23, it must be noted that growth has not gotten "shallower".

India’s economy grew 4.4% in the October-December quarter of the financial year 2022-23. The country's GDP for Q2 (July-Sept) FY23 had moderated to 6.3%, while it grew 13.5% in the first quarter of FY23.

Assuringly, India's growth momentum gathered in Q3 of 2022-23 is likely to be sustained in Q4, as reflected in the performance of high-frequency indicators' collections for January-February 2023, the report adds. Notably, GST in February 2023 crossed the ₹1.4 lakh crore benchmark for the 12th successive month.

Similarly, increasing electronic toll collection levels reaffirms rising commercial activity, while robust energy demand is yet another evidence of strengthening economic activity, says the report, adding that "overall demand conditions have remained conducive" as deduced from robust tractor sales, auto sales, high UPI transactions and double-digit credit growth.

Inflationary pressures, too, eased in February, with a slight moderation in CPI inflation and WPI inflation softening to a 25-month low. With WPI inflation easing, its "transmission to CPI inflation is soon expected". "Forecasts by various international agencies show that inflation will moderate in FY24 compared to FY23 and is likely to remain in the range of 5-6%, with risks evenly balanced," says the report.

India's retail inflation eased marginally to 6.44% year-on-year in February as compared with 6.52% in January, but still stays above the RBI’s upper threshold limit of 6%.

The finance ministry says going forward, the inflation trajectory will likely be determined by "extreme weather conditions" like heatwaves and the possibility of an El Nino year, volatility in international commodity prices and pass-through of input costs to output prices".

India's current account deficit (CAD) is estimated to fall in FY23 and FY24, providing a buffer to the rupee in uncertain times, primarily due to gains from services exports, moderation in oil prices and the recent fall in import-intensive consumption demand.

On the tightening of financial conditions by central banks to tame inflation, the report sees "limited concerns" for India. "India's private non-financial sector debt has witnessed a steady decline since mid-2021, along with an improvement in the quality of debt."

Further, India’s corporate sector credit-GDP ratio is also below its historical trend, implying sufficient space for the corporate sector to borrow further. "The strong debt profile portrayed by corporates will prove to be the economy going forward," the report adds.

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