Indian economy stands tall than its global peers; likely to score a double-digit GDP growth in Q1FY23

India is one of the few economies that has rebounded strongly despite three significant COVID waves, and it is currently in better shape than its global peers. Looking at the numbers, inflation fell to 6.7% in July from 7.1% in June, indicating that inflation is slowing.

The IMF's GDP projection for India stands at 7.4 percent for FY 2022–23, which is significantly higher than most developing economies. China, for example, had a rate of only 3.3 percent. The IMF's estimate is even marginally higher than the Reserve Bank of India's latest estimate of 7.2% for the same period.

Even when compared with developed economies like the US and UK, India is projected to grow at a faster pace, as per the IMF projections.

In line with the IMF, global brokerage firm Morgan Stanley said India is likely to be the fastest-growing Asian economy in the Asian region in 2022–23. It anticipates India's GDP growth to average 7 percent in 2022–23 and says the Indian economy is set for its best run in over a decade as pent-up demand is being unleashed.

Morgan Stanley expects that macroeconomic stability indicators will return to normal levels, and that the Reserve Bank of India (RBI) will not need to raise interest rates aggressively shortly.

Credit rating agencies, S&P and Fitch, expect India to grow by 7.3 percent and 7.8 percent, respectively, in FY22-23.

Furthermore, for the April-June quarter of FY23, several domestic and global agencies are expecting that India will score a double-digit GDP growth rate.

The SBI's latest research report shows that India's GDP is expected to grow by around 15.7 percent in Q1FY23, with a large possibility of an upward bias.

Indian GDP growth fell to 4.1% in the fourth quarter of the last fiscal year, its slowest pace in a year. Asia’s third-largest economy grew by 20.1%, 8.4%, and 5.4%, respectively, in the first three quarters of the fiscal year 2022.

The report said the heatwave in the major regions across India during the Kharif season limited economic activity. Leaving this aside, most of the high-frequency economic indicators showed improvement, especially in service activity.

Adding to this, the report said, out of the 41 high-frequency leading indicators, 89% showed an acceleration in the first quarter, compared to 75% in the same period last year. This shows the growth momentum in the first quarter was strong and broad-based.

Similarly, ICRA said the country's GDP growth in the first quarter is expected to grow in double digits at 13%. The high growth is expected due to the low base during the second wave of the COVID-19 pandemic in India and the robust recovery in contact-intensive services, says ICRA.

According to DBS Group Research, the Indian economy will grow at a rate of 16% in the first quarter of FY23. It also maintains its FY23 growth forecast of 7%, making India the fastest-growing economy in Asia this year.

A big boost for India's manufacturing sector

India's manufacturing sector activity gained momentum in July, hitting an eight-month high. The Manufacturing Purchasing Managers' Index (PMI) compiled by S&P Global jumped to 56.4 in July, from 53.9 in June. It was boosted by solid growth in new orders and output as demand continued to improve on the back of easing price pressures.

The July PMI data pointed to an improvement in overall operating conditions for the 13th straight month. In PMI parlance, a print above 50 means expansion, while a score below 50 denotes contraction, PTI reported.

In a big boost to India's manufacturing sector, Apple says that it plans to make the iPhone 14 in India after its release as the U.S. tech giant seeks alternatives to China after the Xi administration's clashes with Washington and lockdowns across the country disrupted production, Reuters reported, quoting a Bloomberg report.

According to the report, Apple's Taiwan-based supplier Foxconn has studied the process of shipping items from China and assembling the iPhone 14 at its plant outside the southern Indian city of Chennai.

The report said production of the first iPhone 14s from India is likely to be completed in late October or November.

Limited External Debt

High foreign debt can be dangerous, particularly for emerging economies. If the borrowing country's currency weakens due to an economic slowdown, high inflation, or a larger trade deficit, it will be more difficult for the country to service those foreign debts. When this happens, the country's foreign exchange reserves will plummet and it will be forced to default on foreign loans.

India's neighbouring country, Sri Lanka, has become the first country in the Asia-Pacific region in 20 years to default on foreign debt, according to media reports. Similar case with Pakistan, the foreign currency reserves have plunged to US$ 9.8 billion, which is only left for five weeks of imports. The foreign currency reserves of Nepal have reached dangerous levels.

However, India's limited external debt and robust foreign exchange reserves will help the nation to eliminate any external challenges, S&P said. It expects India's forex kitty to grow back to $600 billion by the end of this year, the Economic Times reported.

The recent RBI data shows that nearly $69 billion has been wiped out from the record high foreign exchange reserves of $642.45 billion on September 3, 2021. However, the RBI's reserves of $573 billion remain the fifth largest in the world.

The rupee has depreciated by about 7% against the US dollar this year, but it has outperformed its emerging market peers, S&P said.

Bank credit growth accelerates

On August 25, 2022, the RBI releases its quarterly statistics on deposits and credit of SCBs for June 2022. The data shows that the loans extended by the scheduled commercial banks jumped to 14.2 percent in the June 2022 quarter, compared with 6 percent in the year-ago quarter and 10.8 percent a quarter ago.

The share of current account and savings account (CASA) deposits in total deposits has been increasing over the last three years (42.0 percent, 43.8 percent, and 44.5 percent in June 2020, 2021, and 2022, respectively), the RBI report showed.

As credit growth has outpaced deposit growth in recent periods, the credit-deposit (C-D) ratio has been on the rise. In June 2022, the C-D ratio stood at 73.5 percent at the all-India level (70.5 percent a year ago) and 86.2 percent for metropolitan branches of banks (84.3 percent a year ago).

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