ICRA comments on Economic Survey

31 Jan 2022 , 03:17 PM

The range of 8.0-8.5% growth for FY2023 assumed by the Economic Survey appears to have built in a cushion for any disruption caused by future waves of Covid, in our view, even as preparedness of economic agents has improved amidst the insurance offered by the bouquet of social safety nets. The continued thrust to government capex portended by the Economic Survey is enthusing, as it offers the best likelihood of instigating a durable growth recovery. This is in line with our own view that the upcoming Budget must fully allocate the amount of capital spending that can realistically be absorbed in FY2023.

With the Economic Survey corroborating that spending will be back-ended in FY2022, we maintain our forecast of a modest fiscal slippage driven by the missed disinvestment target.

Following the conversion/switch of G-sec with the RBI, we now peg the gross dated borrowing of the GoI at Rs. 12.3 trillion in FY2023.

Our baseline assumption is that GDP growth will remain steady at 8.9% in FY2022 and 9.0% in FY2023. With the rebound in commodity prices leading us to revise up our WPI inflation forecast for FY2023 (to 4.0% from 2.0%), and creating an upside to our projection of a 5.0% CPI inflation for FY2023, we now place nominal GDP growth for the coming year at 13.5%. The stickiness in the CPI inflation suggests that its only a matter of time before the MPC commences on policy normalisation, with a change in stance to neutral in April 2022.

The author of this article is Ms. Aditi Nayar, Chief Economist, ICRA Limited

The views and opinions expressed are not of IIFL Capital Services, indiainfoline.com