The former NITI Aayog Vice Chairman, Arvind Panagariya claimed that India may record a real GDP growth rate of 8% in FY23. However, there are not many who would agree with him. The Reserve Bank of India has projected a growth rate of 7% for FY23, in their latest forecast. Most professional forecasters have much lower forecast for the growth in the next few quarters. The average of professional forecasters’ projected growth of the Indian economy for 2023, as per Bloomberg, is close to 6%. In their latest forecast, Goldman Sachs Group projected the Indian economy to grow at 6.9% in calendar year 2022 and 5.9% in 2023. Morgan Stanley Research expects the Indian economy to grow at 6.8% in 2022 and 6.2%in 2023. Fidelity International expects the Indian economy to grow between 5.5 to 7% in 2023.
Recent economic data has been giving mixed signals about the economy. While the domestic sector is showing resilience, the external sector continues to remain a concern.
Weak external sector
The external sector has been weak for a few quarters now. The trade deficit in October 2022 widened to a worrisome US$26.91bn. Exports dropped ~17% in October 2022 on slower global demand; while imports were still higher by ~6%.
Notwithstanding the efforts of the government to improve trade account by import substitution and export promotion; the exports have grown at a slow 4.3% CAGR in the past three years; whereas the imports have registered 14.3% CAGR in the same period, resulting in larger trade deficit. The external situation thus remains tenuous.
…offset by resilient domestic sector
In the domestic sector however there are some signs of stability. GST collections have been strong; credit growth has started to pick-up; manufacturing and services PMIs are indicating expansion and inflation is showing signs of peaking.
As per the Nirmal Bang Institutional Research, “incremental flow of credit to the commercial sector in 1HFY23 is at a multi-year high when compared to the recent past.” A recent report by the brokerage highlights that Incremental credit flow from banks, while being led by retail credit, is now becoming more broad-based, with services (mainly NBFCs), industry (particularly MSMEs) and agriculture also contributing.
As per the rating agency CARE Ratings, the quality of debt being raised and outstanding in India has been improving consistently. The proprietary CareEdge Debt Quality index (CDQI) of CARE ratings is now at almost 7 year high. As per the latest release, CDQI inched up further to 92.74 in October 2022 as compared to a level of 92.70 in September 2022 on account of increase in higher rated debt and upgrades in the investment grade rating categories.
The commentary of most corporate management indicates that rural demand is a matter of concern for now. A good rabi crop could address some of this concern; but overall the growth prospects remain modest. The Indian economy certainly does not face any prospect of recession or even a sharp slowdown; but we may not see any meaningful acceleration also in the next couple of years. The external shocks may create large volatility in the markets and provide good entry points for the money waiting on the sidelines; otherwise we are in a boring market for the next many months.
