The global economic slowdown will have a certain degree of impact on the Indian economy but it will also offer two silver linings to the domestic economy.
The Economic Survey 2022-23 said the scenario of subdued global growth presents two silver linings – oil prices will stay low, and India’s CAD will be better than currently projected. The overall external situation will remain manageable, the survey document said.
The survey highlighted that India's GDP growth may stand at 6 to 6.8 percent in 2023-24, depending on the trends of global economic and political developments.
A longer stretch of inflation may cause a prolonged tightening cycle which will keep the borrowing costs higher for a longer duration. This can result in low global economic growth in FY24.
The government's flagship economic document pointed out that global growth may slow from 3.2 percent in 2022 to 2.7 percent in 2023 as per IMF’s World Economic Outlook, October 2022.
"A slower growth in economic output coupled with increased uncertainty will dampen trade growth. This is seen in the lower forecast for growth in global trade by the World Trade Organisation, from 3.5 percent in 2022 to 1.0 percent in 2023," said the Economic Survey.
The survey highlighted six challenges faced by the global economy:
(i) Covid-19-related disruptions in economies;
(ii) the Russian-Ukraine conflict and its adverse impact along with disruption in the supply chain, mainly of food, fuel and fertilizer;
(iii) the central banks across economies led by the Federal Reserve responding with synchronised policy rate hikes to curb inflation, leading to the appreciation of the dollar and the widening of the current account deficits (CAD) in net importing economies;
(iv) the prospects of global stagflation. Nations feel compelled to protect their respective economic space, thus slowing cross-border trade and affecting overall growth;
(v) China experienced a considerable slowdown induced by its policies;
(vi) scarring from the pandemic due to the loss of education and income-earning opportunities.
The survey observed that like the rest of the world, India, too, faced this extraordinary set of challenges but withstood them better than most economies.
The survey pointed out that the upside to India’s growth outlook arises from:
(i) limited health and economic fallout for the rest of the world from the current surge in Covid-19 infections in China and, therefore, continued normalisation of supply chains;
(ii) inflationary impulses from the reopening of China’s economy turning out to be neither significant nor persistent;
(iii) recessionary tendencies in major Advanced Economies (AEs) triggering a cessation of monetary tightening and a return of capital flows to India amidst a stable domestic inflation rate below 6 per cent;
(iv) this leads to an improvement in animal spirits and provides further impetus to private sector investment.