GDP to grow by 5.7% in 2023-24

by Manasi Swamy

The release of pent-up demand this year and low base of the last year are likely to help the economy clock a healthy 6.7 per cent real GDP growth in 2022-23. 2023-24 does not enjoy such benefits and therefore is expected to witness at least a percentage point deceleration in GDP growth.

The fading away of domestic pent-up demand will be predominantly visible in the growth of PFCE (private final consumption expenditure). We expect PFCE to grow by 4.5 per cent in 2023-24. This is a very low growth rate when compared to the average annual PFCE growth of 6.8 per cent registered in the decade prior to the coronavirus pandemic. It is low even compared to the long-period average annual PFCE growth of 4.9 per cent recorded during the five decades that ended in March 2020.

Besides exhaustion of the pent-up demand effect, elevated and rising interest rates, withdrawal of the PMGKAY and an expected moderation in the growth of farm income are some of the factors that are likely to adversely affect PFCE growth prospects in 2023-24. The PFCE has a large share in the GDP. It accounted for 58.6 per cent in 2022-23. Therefore, its slowing down would have a significant impact on the growth of the real GDP as a whole.

We expect GFCE (government final consumption expenditure) to grow by 5.6 per cent in 2023-24. This is considerably higher than the around 3 per cent growth in consumption expenditure recorded by the government for four years including 2022-23.

Investment demand is expected to be the key driver of GDP growth in 2023-24. We estimate gross fixed capital formation (GFCF), which measures the investment demand in the country, to increase by 6.5 per cent in real terms, in 2023-24. The government’s thrust on capex is expected to continue. Participation of private corporates in fixed asset creation will likely remain modest in 2023-24.

Our GFCF projection for 2023-24, prima facie, suggests a sharp sequential deceleration in growth from 15.8 per cent in 2021-22 and 9.7 per cent estimated for 2022-23. These growth rates had followed a steep 10.4 per cent contraction in GFCF in 2020-21 amid the coronavirus pandemic shock. Smoothened growth in GFCF during these three years works out to 4.4 per cent per annum. The GFCF growth of 6.5 per cent that we are projecting for 2023-24 is much higher than this.

Moreover, we expect the investment rate (GFCF as % of GDP) to increase to 33.6 per cent in 2023-24 from 32.5 per cent in 2021-22 and 33.4 per cent estimated for 2022-23. This is the third highest investment rate the Indian economy would be witnessing. The economy had achieved investment rates higher than this only twice in the last 60 years once in 2011-12 of the order of 34.3 per cent and in the following year 2012-13 of 34.1 per cent.

The share of consumption expenditure (PFCE) in GDP is projected to decline to 58 per cent in 2023-24 from 58.6 per cent in 2022-23. Despite this drop, PFCE would be making the second highest contribution to India’s GDP in 18 years.

The share of GFCE in GDP is expected to remain constant at 10.3 per cent in 2023-24 as compared to 2022-23.

We expect the Indian economy to get some relief from the rising trade deficit in 2023-24. We forecast trade deficit to shave off 5 per cent of GDP in 2023-24, which is smaller than the 6.6 per cent share it is estimated to take away in 2022-23. Yet, this would be the fourth largest dent to GDP received from foreign trade in the last 60 years.

India’s trade deficit has widened sharply in the past two years despite record exports as imports have grown at a faster clip. We expect India’s exports to shrink in 2023-24 as its major trading partners US, UK, Euro area and China - either slip into recession or see a steep slowdown in growth. Imports too are expected to witness a contraction, thereby pulling the trade deficit down by about 20 per cent from 2022-23. Trade deficit is estimated to widen to a record high of Rs.1.1 trillion in 2022-23. We expect it to soften to its second highest historical level of Rs.878 billion in 2023-24.

CMIE STATISTICS
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.1 -0.1
Consumer Sentiments Index
Base September-December 2015
84.6 -0.2
Consumer Expectations Index
Base September-December 2015
83.7 0.0
Current Economic Conditions Index
Base September-December 2015
86.0 -0.5
Quarterly CapEx Aggregates
(Rs.trillion) Mar 22 Jun 22 Sep 22 Dec 22
New projects 8.68 5.20 4.42 6.68
Completed projects 1.33 1.18 1.36 1.61
Stalled projects 0.43 0.53 0.07 0.01
Revived projects 0.33 0.29 0.12 0.32
Implementation stalled projects 0.09 0.29 0.26 0.11
Updated on: 05 Feb 2023 8:28PM
Quarterly Financials of Listed Companies
(% change) Mar 22 Jun 22 Sep 22 Dec 22
All listed Companies
 Income 20.8 40.1 25.2 19.8
 Expenses 19.8 41.4 27.1 20.6
 Net profit 31.6 21.1 -1.4 5.7
 PAT margin (%) 8.8 7.2 7.8 9.9
 Count of Cos. 4,686 4,704 4,578 1,301
Non-financial Companies
 Income 24.8 50.1 27.9 18.5
 Expenses 25.7 52.9 31.5 20.5
 Net profit 10.1 8.4 -21.0 -12.7
 PAT margin (%) 7.6 5.7 5.7 7.1
 Net fixed assets 2.0 4.1
 Current assets 15.0 19.1
 Current liabilities 11.7 10.4
 Borrowings 3.5 12.8
 Reserves & surplus 11.2 7.6
 Count of Cos. 3,398 3,424 3,371 944
Numbers are net of P&E
Updated on: 05 Feb 2023 8:28PM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.6 -1.4 26.0
 Expenses 0.3 -3.6 24.9
 Net profit -3.0 74.5 63.3
 PAT margin (%) 2.0 4.5 7.2
 Assets 8.9 10.7 9.9
 Net worth 4.8 12.0 14.0
 RONW (%) 3.4 6.9 11.5
 Count of Cos. 31,839 30,688 14,155
Non-financial Companies
 Income -1.1 -2.5 30.7
 Expenses -0.9 -4.4 30.4
 Net profit -20.5 62.4 61.3
 PAT margin (%) 2.3 4.0 6.2
 Net fixed assets 11.4 2.4 2.1
 Net worth 2.1 10.6 14.5
 RONW (%) 4.7 7.6 12.7
 Debt / Equity (times) 1.1 1.0 0.8
 Interest cover (times) 1.9 2.5 4.0
 Net working capital cycle (days) 73 82 59
 Count of Cos. 25,106 24,021 11,477
Numbers are net of P&E
Updated on: 04 Feb 2023 5:32PM