Finance Ministry's real FY23 GDP forecast lower than in Economic Survey

The Finance Ministry’s internal projections for what real gross domestic growth in FY23 could be, is lower than the 8-8.5 percent given out in the 2021-22 Economic Survey, Business Standard has learnt.

In some sections of the government, the thinking is that GDP growth at constant prices could be closer to 7 per cent, as while policymakers do expect the deflator to come down in the next financial year, inflation pressures will still remain and hence the deflator may not be as low as 3 per cent, if one goes by the difference between real GDP estimates in the survey and the nominal GDP estimates in the Budget.

“The expectation is that it will be more on the lines of growth of about 7 per cent, plus deflator of 4 per cent. Before the pandemic, in 2019-20, we had a growth of around 3.7 per cent, according to the recent first revised estimates. We have come out of the pandemic contraction and are at pre-pandemic levels now. So next year, an 8 per cent growth is unlikely,” a top official said.

The Budget assumes a nominal GDP growth of 11.1 per cent for FY23. A GDP deflator or implicit price deflator is a measure of inflation and is the difference between nominal GDP and real GDP as the former includes inflation and the latter doesn’t.

If the survey and Budget projections for FY23 turn out to be accurate, the deflator would just be around 3 per cent. This at a time when the Reserve Bank of India (RBI) expects an average retail inflation of 5 per cent in the first half of the coming fiscal year. Also, continued high global commodity prices will impact the wholesale inflation print, though it is expected to come down on back of a high base from 2021-22.

The last time India’s real GDP was at 8 per cent-plus was in 2015-16 (8 per cent) and 2016-17 (8.3 per cent). Growth started slipping since then as first the economy was impacted by the temporary effect of demonetisation, and then gradually as a slowdown took hold.

In his post-Budget interview with Business Standard, Finance Secretary TV Somanathan declined to talk on whether the Centre’s own GDP estimates were different from that of the survey. He said the GDP deflator for the current year (FY22) was around 8.4 per cent.

The projections for FY23  in the latest Economic Survey, which was drafted by Principal Economic Advisor Sanjeev Sanyal, are lower than that of the International Monetary Fund (see chart).

The assumptions behind the projections are: there will be no further debilitating pandemic-related economic disruption, normal monsoon, withdrawal of global liquidity by major central banks will be broadly orderly, oil prices will be in the range of $70-75 a barrel, and the global supply chain disruptions will steadily ease over the course of the year.