INDIAs GROWTH PROJECTION 

1. Context

2. Key Points

• The government's focus on bolstering capital expenditure supported domestic demand in the first half of 2022-23.

• The bank expects the Indian economy to grow at a slightly slower 6.6% in 2023-24 as a challenging external environment.
• 1% decline in growth in the United States is associated with a 0.4% point decline in India's growth.
• The effect is about 1.5 times larger for other emerging economies & the result is similar for growth spillovers from the EU & China.
• A well-crafted & prudent policy response to global spillovers is helping India navigate global & domestic challenges.

3. Indian government's response

• The Indian government's response to the external shock combined demand-side & supply-side policies, with both fiscal & monetary policy levers deployed.
• The RBI's gradual withdrawal of liquidity & policy rate hikes have been aimed at anchoring inflation expectations.
• The central bank's management of short-term volatility in exchange rates has contributed to a decline in reserves, though they are still at a relatively high level.
• Strong revenue growth would largely offset India's higher subsidy bill & lower fuel taxes but these measures have slowed the pace of fiscal consolidation.
• The confluence of multiple challenges on the external front poses a challenge to India's growth trajectory, but balanced policymaking will help India navigate global headwinds.
• A widening goods trade deficit, driven by rising imports & softening exports, has expanded the current account deficit to 2.8% of GDP in Q2 from 1.5% in the first quarter.
• The trade deficit will be offset by resilient services trade surplus.

For Prelims & Mains