Balaji Amines Ltd Management Discussions

An Economic Overview

World Economy: According to IMF World Economic Outlook (April, 2023), the global economy is yet again at a highly uncertain moment, with the cumulative e_ects of the past three years of adverse shocks-most notably, the COVID-19 pandemic and Russias invasion of Ukraine-manifesting in unforeseen ways. Though, the global economy saw a remarkable recovery during the pandemic and other related headwinds, albeit from a lower base.

The World Economy is facing several challenges such as incremental in_ation, the cost of living, trade wars and protracted geopolitical con_icts. The world economy has _nally regained its positive growth momentum. E_ective economical stances undertaken by Governments across the world helped build the way for more resilience across nations and businesses, to stay future-prepared and on their toes. In January 2023, IMF in its Report forecasted that against an estimated global growth of 3.4% for 2022, growth will fall to 2.9% in 2023 followed by 3.1% in 2024 - three consecutive years of growth lower than the historical average of 3.8%.

The shock of Russias invasion of Ukraine in February 2022 continues to reverberate around the world. The Russian-Ukraine humanitarian crisis and consequent supply-chain disruptions, hikes in energy prices, rising commodity prices, and widespread in_ation all weighed heavily on the overall prospect of the global economy in 2022.

To battle in_ation, central banks worldwide hiked policy interest rates. As a result, in_ation moderated by the end of the year.

However, despite in_ation, global trade _ourished in 2022. By mid-December, global trade in goods grew 10%, and global trade in services grew 15% yearly. Also, global trade volumes grew Significantly during 2022, signaling a rise in global demand.

While there are signs that the tightening of monetary policy is beginning to dampen demand and in_ation, the total impact is unlikely to materialise until 2024.

Outlook: In 2023, headline in_ation is expected to come down to 7% from 8.8% last year due to the decline in commodity prices. Central banks are expected to continue tightening monetary policy, but the contraction rate will be slower this year. Growth slowdown is likely to persist in advanced economies even in 2023. By sharp contrast, many emerging markets will likely see acceleration in growth this year.

Further, structural reforms will help _ght the price rise by improving productivity and easing supply constraints. In the meantime, demand for environmentally sustainable products is expected to spur global demand.

Indian Economy: In FY23, the Indian economy continued to remain strong in the face of adverse global macroeconomic challenges. According to the data by MoSPI (Ministry of Statistics and Programme Implementation), Indias GDP grew by about 7.2% in FY23.

Indias economic growth story was primarily supported by robust investment activity reinforced by government capex push, return of private consumption and capital formation, which also helped generate employment in the country. Further, the widespread vaccination drive lifted consumer sentiments which sustained over all consumption both industrial and domestic fronts.

Though, the global turmoil in FY23 triggered broad-based in_ation worldwide, and India was no exception. In April 2022, retail in_ation, measured by CPI (consumer price index), reached the highest (7.79%). RBI increased interest rates to contain the soaring in_ation. By the end of this _scal, CPI (consumer price index) came down to 5.66%.

The index of industrial production grew by 5.1%, against a growth of 11.4% in FY22. Despite this drop, GST collection in FY23 stood at H18 lakh crore, clocking a growth of 22% over last year. It shows the resilience of the Indian economy amid several global headwinds. Net Direct Tax collections (provisional) for the FY23 stood at H16.61 lakh crore marking a growth of 17.63% on a y-o-y basis.

However, despite weak global demand, merchandise exports hit a record high of US$ 447.46 billion, registering a 6.03% growth over FY22. Imports, on the other hand, rose to US$ 714.24 billion in FY23. Last year it was US$ 613.05 billion. As a result, the trade de_cit moved north to US$ 266.78 billion.

Net FDI declined by nearly 27% to US$ 28 billion in FY23 as compared with US$ 38.6 billion a year ago, mainly due to moderation in gross foreign direct investment inflows and an increase in repatriation.

Fitch Ratings a_rmed Indias long-term foreign-currency issuer default rating (IDR) at ‘BBB- with a Stable outlook, backed by robust growth outlook and abating core in_ation pressure.

In an e_ort to push the infrastructure capex, in the financial budget for FY24, the Central Government announced a massive increase of 33% in the capex outlay to H10 lakh crore, about 3.3% of the GDP. This is said to have a multiplier e_ect resulting in additional economic activities and job creation with all round economic activity being the single point agenda.

Outlook: For the FY24, the overall growth scenario is expected to remain robust, although Significant challenges persist in the global environment. Slower consumption and income growth and rising borrowing costs will weigh on the countrys overall economic growth. However, due to an increase in exports, the current account de_cit is expected to narrow down this year. Headline in_ation is projected to decline owing to easing commodity prices and a slowdown in consumer demand. The RBI has forecasted Indias GDP growth at about 6.5% in FY24. Despite a downgrade from FY23, it will continue to be one of the fastest-growing economies in the world.

SOURCE: GOVERNMENT PUBLICATIONS, REUTERS, MINT, FORBES