India's economic growth expected to slow amid global slump

India's pre-budget economic survey forecasts a slowdown in the country's gross domestic product growth to between 6 per cent and 6.8 per cent in the coming financial year, from a projected 7 per cent in the current fiscal year, amid weak global economic conditions.

The economic survey is an annual review by the Indian government on the state of the economy, the latest edition of which was released on Tuesday.

It comes at a time “when global uncertainties are rife”, V Anantha Nageswaran, the Indian government's chief economic adviser, said in the report.

The survey was released a day before India's Finance Minister Nirmala Sitharaman presents the country's annual budget for the next financial year, which begins in April and ends in March 2024.

India, which overtook the UK to become the world's fifth-largest economy in 2022, is expected to grow by 6.1 per cent this year, higher than other major economies, the International Monetary Fund said in its World Economic Outlook report released on Tuesday.

However, the projection is down from 6.8 per cent in 2022. The IMF forecast that the Indian economy will grow by 6.8 per cent again in 2024, “with resilient domestic demand despite external headwinds”.

India's economy has bounced back from the coronavirus-induced slowdown, when it introduced strict curbs. The latest survey said that growth has been driven by private consumption and that the country is “well-placed to grow faster in the coming decade … once the global shocks of the pandemic and the spike in commodity prices in 2022 fade away”.

However, the country has felt the effects of the global economic fallout of Russia's war in Ukraine. High inflation has been a challenge, amid soaring fuel and food prices.

This prompted the Reserve Bank of India, the country's central bank, to deliver a series of interest rate increases to tighten money supply.

Partly due to these measures, inflation has eased a bit recently, with retail inflation at 5.72 per cent in December, according to official figures. This number is still uncomfortably close to the upper end of the RBI's inflation target of 2 per cent to 6 per cent.

However, the economic survey said inflation was not high enough to weaken investment and consumption. “With inflation off from its peak, the demand side of the story looks intact, further helped by private capex [capital expenditure] cycle revival along with growing public sector investments,” said Manish Chowdhury, head of research at broker Stoxbox.

“We believe that if India is able to steer through the elevated risks arising from higher inflation and slowing growth in advanced economies, we may usher into a new era of growth.”

The latest economic survey is a “testament of India-specific triggers aligned in the right direction of sustained economic growth”, he said.

Attention will now turn to the annual budget presentation on Wednesday, which will be in sharp focus ahead of general elections in 2024, in which Prime Minister Narendra Modi's government will be seeking a third term in office.

Economists say that the scope for populist measures will be limited. The government will have to try to keep its fiscal deficit in check after its expenditure ballooned during the Covid-19 pandemic as it administered vaccines free of charge, gave food to the poor and offered discounted loans to small businesses.

“The government is going to be cautious,” said Dipti Deshpande, principal economist at Crisil. “It needs to bring down its fiscal deficit.”