Wednesday, 09 Oct, 2024
By: Sutanu Guru
In April 2022, the IMF forecast for GDP growth of India was 8.2%. That was revised down to 7.4% in July and further to 6.8% in October 2022. Image Source: IANS
Erratic monsoons impacting the Kharif output, poor exports, weak consumer sentiments and tepid revival in industrial activity will ensure GDP growth rate falls below 7% this year
There are still about 12 days before data for GDP growth in the July-September quarter is released. But it is quite clear now that the 7.1% GDP growth rate forecast by the Reserve Bank of India will be out of reach for the Indian economy. On August 5, 2022, the RBI had revised downwards the GDP forecast from the previous 7.2% to 7.1%. On September 30, the RBI forecast was reduced further to 7%. All major Indian and global institutions have been revising downwards their 2022-23 GDP forecasts for India. Usually, the International Monetary Fund puts out the most optimistic forecasts. In April 2022, the IMF forecast for GDP growth of India was 8.2%. That was revised down to 7.4% in July and further to 6.8% in October 2022. In June 2022, the World Bank forecast for GDP growth was 7.5%. In October, it was trimmed to 6.5%. Even the State Bank of India has cut GDP growth forecast from 7.5% earlier to 6.8% in September 2022. While it would be impossible to accurately estimate the exact rate of GDP growth rate in 2022-23, one can safely conclude that a 7% GDP growth rate now looks virtually impossible.
As the chart indicates, GDP growth rate for India has been fluctuating widely in various quarters. One trend is clear though: growth rates do tend to slow down in the third and fourth quarters of a financial year. If that holds true this year, it can be assumed that GDP growth rate this financial year will hover around the 6.5% mark. That still makes India the fastest growing major economy in the world. But the exuberance witnessed at the beginning of 2022 has now been replaced by cautious optimism. The reasons are threefold. First, an unusually erratic monsoon has meant that Kharif food grains output will fall from 115 million tons last year to just about 105 million tons this year. Even with a robust Rabi season that is coming, there would be a decline in food grains output, shaving about 0.5% from the previously estimated GDP. Th second reason is the persistent weakness in consumer sentiments, particularly among Indians belonging to middle and aspirational classes. Just one example will demonstrate how this is impacting sales and eventually the GDP. Apple I Phone sales in India have registered record growth this year, a fat acknowledged by Apple Inc CEO Tim Cook when he announced financial results for the company for the quarter ending September 2022. Yet, smart phone sales in India will decline from 160 million units in the previous year to 150 million units in the current year. A similar trend is visible across all product and service categories. High end offerings are growing at a rapid rate while relatively low cost offerings that after to the middle and aspirational class are struggling to grow.
The third factor is external. The Russian invasion of Ukraine and persistent Covid in China has triggered massive supply chain disruptions, leading to a near recession in developed economies in Europe and North America. This has hammered Indian exports. An IndiaTracker analysis published on November 17 (https://www.indiatracker.in/story/why-indias-export-targets-have-gone-for-a-toss) explains how exports could be $ 150 billion less than previous forecasts. That shaves another 0.5% from the GDP.
Under the circumstances, India would be lucky to clock even a 6.5% GDP growth rate.
