Budget 2023 To Boost India Growth To 7% In FY24: RBI Bulletin

India will decouple from macroeconomic projections of current vintage and also from the rest of the world, according to the Reserve Bank of India.

In terms of India’s potential, the Union budget will expand the productive capacity of the economy with thrust on capex; the exploitation of new technologies such as digitization and greening the economy; and by seizing the demographic dividend which together can expand the production possibility frontier of the Indian economy, the RBI said.

Along with the sustained emphasis on capex, other measures announced could also impart "a positive productivity shock" and lead to an increase in total factor productivity that can raise potential growth by 10 basis points per annum.

Schemes under the green growth priority could crowd in Rs 1.7 lakh crore of private investment, bringing the total green investment to Rs 2.6 lakh crore and an increase in GDP of Rs 3.3 lakh crore, or around 100 basis points, of potential output up to 2030, the central bank estimated.

Seizing the demographic dividend by skilling youth and teachers alongside setting up physical and digital libraries could raise potential GDP growth by 5 basis points to 15 basis points a year, it said.

The environment of macroeconomic stability engendered by fiscal consolidation and hence, reduction of debt is expected to bring down inflation in the medium run, with a consequent reduction in macro volatility and country risk premium, ushering in "a virtuous cycle", according to the RBI.

According to estimates, on a standalone basis, i.e., without taking into account other factors that influence the inflation trajectory, this could lead to a reduction in inflation by an average of 26 basis points per annum over the next five years which, in turn, would push up potential growth by another 10 basis points.

Taking all these factors into account, potential growth is expected to shift upwards from 6% estimated by the IMF in 2022-23, to 6.8%. With the raising of India’s potential growth due to measures announced in the budget, there is likely to be a faster consolidation of Union government debt to 54.3% of GDP by 2027-28, the central bank forecast.

Other key pointers:

• Global slowdown to be milder than anticipated but the trajectory remains unpredictable.

• In India, domestic consumption and investment stand to benefit from stronger prospects for agricultural and allied activities, strengthening business and consumer confidence, and strong credit growth. 

• Supply responses and cost conditions are poised to improve, even though inflation witnessed a rebound in January. 

• Lead indicators point towards sustained momentum in economic activity, the RBI said.

• The economic activity index showed an uptick in activity in November and December 2022. Accordingly, nowcast of GDP for Q3 FY23 is placed at 4.4%. 

• In 2023, the user penetration rate of digital payments in India is expected to exceed that of the world.