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India's GDP growth rate for Fiscal 2024 may dip.

 India's nominal GDP growth for Q2 FY 22-23 is estimated by National Statistical Office (NSO) of MOSPI  at16.2% and the real GDP Growth rate at 6.3%.

From the Govt side we notice that Fiscal deficits are still lose compared to what it was before the pandemic hit us. The combined fiscal deficits of Centre and States is more than 10% in FY 21-22 (RBI report Appendix-Table 1)link ; PIB release on Fiscal Deficit( link)

For the current FY 22-23 it will be slightly less than 10% as per BE.

The RBI repo rate has gone up so far by 2.25%p.a so far since May 22 in five tranches ,pushing up all the lending rates of the Banks.

Combined with the rate hikes RBI has also sucked up excess liquidity in the system through CRR and other monetary policy instruments like VRRR, and other Open Market Operations like Operation Twist etc.

With a slightly higher than FRBM mandated Fiscal Deficit at the Centre and a high FD combined with States crowd out private investments due to excessive Govt borrowings.Added to this is liquidity tightening and increase in Bank rates and this is a heady concoction for the Indian Economy.

The result could be faltering growth rate in the short to medium term upto 1/2 years.

Last year India witnessed greater traction in the economic growth due to pent-up demand in both the domestic economy as well as in global trade.The buoyancy in the economy in the last year was mainly due to this favourable scenario where Domestic sales as well as Exports grew in double digits.The price line of commodities played a spoiler impacting the profits. But current year is witnessing severe contraction in Exports and the support is only from domestic economy so far.However when we peep into the next financial year we see lot of headwinds coming up due to the above tightening of fiscal and monetary policies which may dampen Domestic economic demand also.

Inflation is moderating but all depends on the Crude Oil price scenario going forward in the International market which in turn depends on evolving  Russia-Ukraine war scenario.Inflation expectations and RBI hikes in  tandem have an unintended consequence of hurting personal savings and consumption behaviours which in turn will affect domestic demand in the future with a lag even upto 6/8 months.

Considering all this, India's GDP Growth rate may slightly dip down in FY 23-24 and the likely scenario is 5.5-6% growth.

The bigger point to be looked at is whether Modi Govt can afford a slow down in Indian economic growth rate when it is entering the year of Parliament elections which will be fought in May 2024. Therefore in all likelihood the Fiscal deficit consolidation will be given a short shrift in the Budget this year.

 

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