Opinion While India will be among the fastest-growing economies in the world, fault lines must be addressed

The Indian economy is expected to grow at 7 per cent in 2022-23 as per the first advance estimates of national income released by the National Statistical Office (NSO) on Friday. This is marginally higher than the RBI’s most recent assessment — in the December monetary policy committee meeting, the central bank had lowered its expectation of growth to 6.8 per cent. Considering that the economy grew by 9.7 per cent in the first half of the financial year (April-September), the latest estimate implies that growth is likely to slow down to 4.5 per cent in the second half of the year (October-March) as the base effect wanes. Notwithstanding that, the full-year growth estimate suggests that India will be one of the fastest-growing economies in the world.

The disaggregated data, however, points towards several areas of concern. One, private consumption is likely to contract in the second half of the year. While the pace of contraction is expected to be marginal, the slowdown in spending could be due to either the exhaustion of pent up demand or the lagged impact of a tighter monetary policy. Two, as per the estimates, exports are likely to grow at almost 12 per cent in the second half of the year. This is at odds with recent data which showed that export growth has actually slowed down considerably as advanced economies have come under pressure. Three, agricultural growth is expected to slow down in the second half. As per some analysts this is not in sync with the healthy sowing rates and reservoir levels. Fourth, the manufacturing sector, which was almost flat in the first half of the year, is expected to witness an uptick in the second half. It is difficult to reconcile this with the view that both domestic demand and exports are likely to remain subdued, which would in turn impact industrial production. Fifth, public administration, defence and other services, which largely connotes government spending, is expected to remain more or less flat in the second half. This is odd considering that government consumption expenditure is pegged to grow at 7.2 per cent during the period.

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As the first advance estimates suffer from data limitations — they are based only on seven to eight months of data — these are likely to change once more data is available. However, they do provide some sense of underlying momentum in economic activities, and are useful in the context of the upcoming Union budget. The last budget had assumed a nominal GDP growth of 11.1 per cent. However, as per the latest estimates, nominal GDP is expected to grow at a significantly higher pace of 15.4 per cent. Along with trends in tax collections as per which the government’s revenues will surpass budgeted targets by a significant margin, these growth estimates only increase the likelihood of the Centre meeting its budgeted fiscal deficit target for the year.