The demand for services is skyrocketing as is evident from the PMI numbers, which were at an 11-year high in May 2022. "The industry sector is also holding up well. Demand for electricity in the first six months of the year has been higher than in the past three years. The number of vehicles registered, meanwhile, has reached pre-pandemic levels," the report adds.

The other good news is the government’s capital spending share is going up even as it is cutting down revenue expenses. "India’s gross tax collection has beaten all expectations," says the report, adding that economic boost and better compliance have helped in better revenue. Notably, the total tax collection reached ₹27.07 lakh crore ($356.82 billion) in FY21–22, surpassing the government’s revised target by a substantial margin.

"Improved economic activity and better compliance efforts in taxation have aided in better revenues. The tax buoyancy (which is a measure of growth in tax revenues compared to GDP growth), the simplified tax regime with low rates, comprehensive review and rationalisation of the tariff structure, and digitisation of tax filing is likely to support further capital spending in the future. Higher capital spending on infrastructure and asset-building projects is likely to boost growth multipliers in the medium term."

Moreover, exports — in terms of their contribution to GDP — also bolstered recovery even when all other growth engines were losing steam, says the report, adding that the opportunity to boost exports is "promising". "The manufacturing sector growth looks encouraging as several multinational companies will look for resilience and cost-effectiveness in light of the China Plus One strategy," the report adds.

Due to global uncertainty, economic fundamentals have "deteriorated", as a result, Deloitte India revised its India outlook in March by over a percentage point. "We expect two possibilities, with assumptions around the longevity and severity of the Russia-Ukraine conflict and the pandemic. Global economic growth and disruptions to the supply chain will be other critical determinants."

Also, inflation is expected to remain "stubbornly high", despite rate hikes in FY23 unless the global slowdown causes oil and commodity prices to fall, it adds. India’s retail inflation slightly moderated to 7.01% in June 2022 from 7.04% in May this year, shows government data. This marks the sixth month that retail inflation has remained above the tolerance band of 2-6% recommended by the RBI.

Notwithstanding global uncertainties, inflation and supply chain worries, domestic demand and the desire of global businesses to look for more resilient and cost-effective investment and export destinations, among other factors, will help India ride this tide of headwinds, says the report.

FY23 growth estimate

India recovery optimism intact; to grow at 7.1-7.6% in FY23