Pushing For Growth
The International Monetary Fund (IMF) predicts global growth will slow down to 2.7 per cent in 2023. In a recent report it stated,“The worst is yet to come, and for many people 2023 will feel like a recession.” For India, this may not be the case. In a recent visit to India, the Deputy Managing Director of IMF, Gita Gopinath said, "India is doing relatively well and it has had a few quarters of 4-6 per cent growth. That helps in terms of closing the gap from the sharp contraction that happened in 2020,” she said. "Given the tough landscape, India is performing relatively well," Gopinath added.
Experts are divided on their prediction for India’s GDP growth in 2023 with some rating agencies announcing a 6 per cent growth rate or even less. The point that Gopinath is highlighting is in the global context. Many countries in Europe, Asia and North America are expected to see stagnated growth. Compare them to India, and we have a relatively shiny picture even if the rate of growth remains at 6 per cent or less.
The Indian economy needs to spend more. That is why the Finance Minister Nirmala Sitharaman has also indicated that India will continue to push the growth agenda on the back of increased public spending like before. "The upcoming budget will follow the spirit of the earlier budgets. We are going to set the template, which was set earlier but follow it and take it further for India’s next 25 years," Sitharaman said on an industry platform. The finance minister will be presenting her fifth straight budget on February 1 for the fiscal starting April 2023. In her last budget, the finance minister had raised capital expenditure by 35.4 per cent for the financial year 2022-23 to Rs 7.5 lakh crore to boost demand. This was Rs 2 lakh crore more than what was allocated in the budget for 2021-22. All indications are that for FY24, the capital expenditure allocation may be increased further. And why not? The tax collection numbers have been robust across all months this year. For example the GST collections for October 2022 rose to Rs 1,51,718 crore, the second highest since the indirect tax regime was implemented on July 1, 2017. The gross GST collection in October 2022 crossed the Rs 1.50 lakh crore mark for the second time, surpassing its previous record in April 2022. This was the ninth month and the eighth consecutive month that the monthly GST revenue surpassed Rs 1.4 lakh crore, the data from the finance ministry showed.
Experts are hopeful of seeing growth in corporate and personal tax collections as well. One expert said, “The collections from corporate and personal income tax are equally robust and could be near Rs 10 lakh crore each, a new record and far above budget projections. This will help keep the fiscal deficit well within the 6.4 per cent target set in the 2022-23 Union Budget.”
Positive Takeaways
"There are many positive takeaways from 2022 that indicate an overall positive outlook for 2023. For example, railway earnings have been up 16 per cent YoY, direct tax collections are up 31 per cent, foreign exchange reserves recently crossed $550 billion after a gap among others," said a senior analyst who tracks the economy. And this is significant because the Indian economy entered 2022 from all the negative impacts of the pandemic. "Coming from the backdrop of the pandemic, uncertainty was expected to be the theme for the year. Government continued its focus for build-out of infrastructure and the union budget echoed the same," said J. Padmanabhan, Director & Practice Leader-Consulting, CRISIL Market Intelligence & Analytics.
Infra Growth
The all-round construction of roads, ports, airports, and other key infrastructure mega projects has been the highlight of 2022 according to experts. For 2023, India is expected to further speed up the construction of new highways. According to Nitin Gadkari, Union Road Transport & Highways minister, India will strive to add 60 kilometres of new highways every day from 2023. Currently, India adds around 40 kms of new highways every day. The National Highway Authority of India is constructing 12,000 kms of new highways in the country. "We are constructing 40 kms of highway per day. Our target is to construct 60 kms of highways per day in 2023," Gadkari said recently. He added, "NHAI is also raising money. There are 26 upcoming green expressways expected to be completed soon." It must be noted that the NHAI has been constructing new national highways and expressways since the past few years. Since April 2019, it has constructed more than 30,000 kms of highways in the country including major expressways. In FY21, NHAI had achieved a record of constructing 37 kms of highway per day.
Commenting specifically on the remarkable growth in the infrastructure segment, Padmanabhan said, "The break out of war and the consequent increase in commodity process did have an impact on the overall project cost for the developers and in certain sectors like roads was more pronounced. Asset monetisation gained further traction and we had financial closure for a few of the assets under Toll Operate Transfer model and we also saw the launch of the Infrastructure Investment Trusts or Public InvIT route by NHAI."
Trade Growth
India’s overall exports (Merchandise and Services combined) in April-November 2022 showed a positive growth of 17.72 per cent over the same period last year. As India’s domestic demand has remained steady amidst the global slump, overall imports in April-November 2022 is estimated to exhibit a growth of 29.47 per cent over the same period last year, a statement from the commerce ministry said. For the month of November 2022 for which the latest data have just come in, India’s overall export (Merchandise and Services combined) stood at $58.22 billion. The exports exhibited a positive growth of 10.97 per cent over the same period last year. Overall, import in November2022 is estimated to be $69.33 billion, exhibiting a positive growth of 5.60 per cent over the same period last year, the statement said.
Concerns
While there are numerous positive indicators that give us hope and strength to predict 2023 as the year of recovery and growth, equally, if not less, are areas of concerns which one should keep in the rear view. High inflation continues to play havoc, impacting growth. The government has urged the Reserve Bank of India to take measures to see that inflation is tamed under 6 per cent by the time the financial year 2022-2023 ends on March 31, 2023.
Another pain point continues to be the growing trade deficit that continues to remain excessively high as exports have come down whereas the imports are on a high. “High trade deficit is likely to put pressure on the rupee as well as on growth. Oil as well as non-oil imports continue to remain above our affordability range,” said the analyst quoted before. One culprit for the high trade deficit, as per the expert, is our trade with China. “This year our imports will cross probably $100 billion and our trade deficit with China is likely to exceed $87 billion which is more than our defence budget,” he said. Another significant concern for India remains with the slowly recovering manufacturing sector. Why? Because our manufacturing sector is fuelled by imports. Be it the automotive sector or the pharmaceutical sector, key input materials need to be imported. While the automotive sector, particularly the two-wheeler segment, has started pushing exports, sector analysts predict a couple of years before we can witness robust exports.
Boosting Private Investments
Will 2023 witness an increase in private investments? It should if we go by the suggestion made by India’s Chief Economic Advisor V Anantha Nageswaran. He said recently that the private sector needs to increase capital expenditure as it may not be healthy for the public sector to continue to invest at the same pace as it did in the last decade. And he quoted some numbers. The combined investment by the Centre, states and public sector enterprises, as per Nageswaran, has gone up 3.5 times over the last 10 years—from Rs 6.8 lakh crore to Rs 21.2 lakh crore currently. "In the decade when the non-financial corporate sector and the banking system were repairing balance sheets, the public sector took over and kept up economic growth throughout the second decade of the millennium and it has continued well into the current decade as well," Nageswaran said.
The corporate sector, he said, currently has a very healthy balance sheet and the bottom line and the balance sheets of banks and financial institutions have been repaired and they are ready to lend. "Therefore it may not be necessary or may not be healthy for the public sector to keep expanding capital investment at the same pace.”
Coming from the chief economic advisor, experts believe that the government may be mulling some sort of scheme whereby the profitable private sector entities may be coaxed to invest in India’s growth story. Will that happen in 2023? Let’s keep our fingers crossed!
