By K R Sudhaman
The Narendra Modi government seems to be on cloud nine after more than expected growth in the fourth quarter of 2022-23. There are certain warning bells in the macroeconomic fundamentals, which should not be ignored. Morgan Stanley is in all praise for Modi government for economic achievements during the last ten years. There are certainly some path-breaking achievements like digitization, managing inflation, though lately not comfortable, covid handling and so on, but there are certain weaknesses which needed to be handled so that the economy gets back to high growth trajectory.
Rating agency Moody’s have rightly flagged one of the issues that is a matter of concern. Fiscal slippage arising from weaker-than-expected government revenues in the current fiscal is certainly needed to be worried about. As it is fiscal deficit is high since Covid, which has not yet been fully reigned-in. Moody’s Investors Service Associate Managing Director Gene Fang has been quoted as saying that India has a relatively high level of general government debt at around 81.8 per cent of GDP for 2022-23, and low debt affordability. In the light of this, Moody’s expects the Indian economy to grow by 6-6.3 per cent in June quarter.
Government may be happy by the more than anticipated GDP growth of 7.2 per cent in 2022-23 on the back of unexpected fourth quarter growth of 6.1 per cent against projections of 4.2 per cent. This is welcome but RBI and finance ministry forecast only 6.5 per cent growth for 2023-24, which was slightly higher than April forecast of 6.4 per cent. But going by Moody’s forecast, that is going to be difficult considering the possibility of fiscal slippages.
Moody’s expect India’s growth to come in around 6-6.3 per cent in the first quarter of the current fiscal year, which remains relatively flat from the 6.1 per cent recorded in the final quarter of fiscal 2022-23.
But Moody’s have acknowledged that India has high growth potential as well as sound external position. As multi-lateral agencies put it, India is certainly in a bright spot in a gloomy global economic situation. But this potential can be realized only through structural reforms, tackling wide-spread corruption, massive push to job creation, particularly in rural areas and correcting the huge infrastructure deficit. Private investment is yet to pick up to the desired level. India is yet to get back to high level of over 35 per cent of GDP. This was achieved during UPA regime. Both savings and investments rates have been steadily declining and dropped much below 30 per cent of GDP especially after COVID. They are slowly picking up but still far from reaching that high level.
There are some weaknesses in farm sector as well, which required reforms to make agriculture smart and improve the rural economy. Tight monetary policy has tamed inflation no doubt during the last one and half years but this has also dampened investments and demand pick up due to high interest rates. So growth will certainly be impacted in the current year and the next year and hence economy will find it difficult to grow to its potential. Nevertheless this will help in bringing about macro-economic stability, critical to help growth momentum in subsequent years. (IPA Service)
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