Opinion A reassessment of economic outlook is essential for government to tweak policy framework for preserving macroeconomic stability
Implicit in this reassessment of key economic variables is perhaps the acknowledgment that even though India will be one of the fastest growing economies during this period, it will not be unaffected by the changing global conditions. The revised expectations suggest that the economy is likely to grow slower than expected
The assessments of inflation and the twin deficits are equally a matter of concern. 
With growing uncertainty over the future of the global economy, policy mandarins in Delhi seem to be reassessing the country’s macroeconomic outlook. Implicit in this reassessment of key economic variables is perhaps the acknowledgment that even though India will be one of the fastest growing economies during this period, it will not be unaffected by the changing global conditions. The revised expectations, as reported in this paper, suggest that the economy is likely to grow slower than what has been expected so far, even as the combination of high inflation and high fiscal and current account deficits could increase economic vulnerability.
In its last monetary policy committee meeting, the Reserve Bank of India had pegged the economy to grow at 7 per cent in 2022-23, marginally lower than its earlier expectation of 7.2 per cent. However, government officials now say that growth of around 6.5 per cent will be “a reasonable expectation”. While more clarity over economic conditions will emerge once the second quarter GDP numbers are released at the end of this month, this reassessment perhaps reflects a more realistic evaluation of the economic outlook, given global and domestic macroeconomic conditions. The impact of aggressive tightening by central banks in developed economies is already beginning to show up in India’s exports data.
The assessments of inflation and the twin deficits are equally a matter of concern. On inflation, government officials are hopeful of ending the fiscal year with retail inflation at 6.5 per cent. In comparison, the RBI has projected inflation to fall from 6.5 per cent in the third quarter to 5.8 per cent in the fourth quarter. The inflation data released on Monday showed that it has eased to 6.77 per cent in October, down from 7.41 per cent in September. Despite a decline, however, inflation will continue to remain above the central bank’s target. On the fiscal deficit, government officials are hopeful of containing it at 6.5 per cent of GDP despite both food and fertiliser subsidies being significantly higher than budgeted. Higher than expected tax collections will help bridge part of the gap. In the first half of the year, the Centre’s tax collections have grown at around 18 per cent, compared to less than 1.8 per cent projected in the Union budget. While the government is likely to keep a tight leash on non-productive expenditure, elevated crude oil prices will continue to weigh on the current account deficit. Considering that these risks are unlikely to ease in the near term, the policy framework should be geared towards preserving macroeconomic stability. But doing so requires, first, a realistic assessment of the state of the economy.
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