Economic Survey 2021-22: Costlier oil a risk to growth forecast

Analysts feel Budget will provide support to sectors worst hit by pandemic

India’s real gross domestic product (GDP) is expected to grow by 8-8.5 per cent in financial year 2022-23 (FY23), the Economic Survey of 2021-22 has projected.

This is higher than the Reserve Bank of India’s last forecast of 7.3 per cent, but lower than the International Monetary Fund’s 9 per cent. Among other agencies, the World Bank projected India’s FY23 GDP growth at 8.7 per cent, while the Asian Development Bank sees it growing at 7.5 per cent. (See chart)

“With the vaccination programme having covered the bulk of the population, economic momentum building back and the likely long-term benefits of supply-side reforms in the pipeline, the Indian economy is in a good position to witness GDP growth of 8-8.5 per cent in 2022-23,” the Survey stated.

However, the growth projection is based on certain assumptions. These are that there will be no further debilitating pandemic-related economic disruption, a normal monsoon, withdrawal of global liquidity by major central banks will be broadly orderly, oil prices will be in the $70-75 a barrel range, and global supply chain  disruptions will steadily ease.

Experts feel these assumptions will weigh on the economy in the year ahead. 

“We believe there are downside risks to the growth outlook of 8-8.5 per cent largely from external factors — high crude prices and reversal of monetary policy by systemically important central banks,” said DK Joshi, chief economist, CRISIL.

Joshi said the Survey was optimistic on medium-term prospects because of the government’s infrastructure capex focus and supply-side reforms, but added that with a nudge from government’s investments and the production-linked incentive (PLI) schemes, private investments will also revive gradually.

“The main reason for the forecast being lower than IMF’s projections is non-availability of significant base effects in 2022-23 as compared to 2021-22. As such, even a growth of 8-8.5 per cent may prove to be optimistic particularly if the underlying assumption regarding global crude prices being in the range of $70-75/bbl. is belied,” said DK Srivastava, chief policy advisor, EY.

The Survey’s projections are based on the Centre’s earlier estimates of 9.2 per cent real GDP growth for FY22, according to the first advance estimates. 

However, just after the Survey was released, the National Statistical Office said that the GDP contraction for lockdown-hit FY21 was being revised to 6.6 per cent from 7.3 per cent earlier. This means that GDP estimates for FY22 works out to be 8.8 per cent, and not 9.2 per cent. A change in this base could impact the growth projections for FY23 as well.

“While the Economic Survey acknowledges the prevailing uncertainty and the slippery slope ahead, the growth projection certainly reflects the resilience that is built in through major supply-side structural and process reforms,” said Sanjeev Krishnan, chairman of PwC India.

Most analysts agreed that Finance Minister Sitharaman will have to provide some support in the Budget to sectors that have been hit the hardest by the pandemic, to realise the Survey’s projections.

“The expectation is that in the forthcoming Budget, government would pay necessary attention to accelerating the recovery in the socially vulnerable and contact-intensive sectors like, transport, tourism, retail, hotel, entertainment, and recreation, which are also employment-intensive,” Srivastava said.