India set to lose fastest-growing major economy tag in 2023

Hit by weakening demand, the Indian economy is expected to grow at a slower 7 per cent rate in the current fiscal ending March 2023, setting the stage for the country losing the fastest-growing major economy tag.

The 7 per cent expansion projected in the first official estimate released by the Statistics Ministry compares with 8.7 per cent gross domestic product (GDP) growth in 2021-22. The projections are much lower than government's earlier forecast of 8-8.5 per cent growth but above the Reserve Bank's projection of 6.8 per cent. If the forecast comes true, India's GDP growth will be lower than Saudi Arabia's expected 7.6 per cent expansion.

In fact, India's GDP growth in the July-September quarter at 6.3 per cent was lower than the 8.7 per cent of Saudi Arabia. The first advance GDP estimates, which are used to work out allocations and other fiscal projections for the next Budget due on February 1, proved to be more optimistic than the actual growth in three out of the last four years.

The first advance GDP estimates, which are used to work out allocations and other fiscal projections for the next Budget due on February 1, proved to be more optimistic than the actual growth in three out of the last four years.

The projections suggest that despite the global headwinds and continued geopolitical uncertainty caused by the Russia-Ukraine conflict, the recovery is on track though there are pressure points. Inflation has been sticky despite a 225 basis points increase in interest rates since last May, which is likely to moderate demand.

Given the full-year projections released today by the NSO, we expect there to be some revisions in either the H1 or the H2 FY2023 sectoral numbers, in the subsequent data releases. Sunil Sinha, Senior Director and Principal Economist, India Ratings & Research, said the road ahead is not going to be easy so long as private final consumption expenditure (PFCE) does not recover fully and become broad-based.

The household sector, which accounts for 44-45 per cent of the GVA, saw their nominal wage growth decline to 5.7 per cent during FY17-FY21 from 8.2 per cent during FY12-FY16. In fact, the real wage growth became nearly flat or even turned negative in some months of FY23 due to high inflation.