Brokerage firm ICICI Securities is of the view that due to India’s demographics and the impact of the reforms of the past two years, the country may lead the G20 in economic growth over the next few years.
India’s real GDP grew 8.3 percent in the calendar year 2021 (CY21), restoring India’s status as the fastest-growing economy among the G20, which is the group of the world’s 20 largest economies, the brokerage said.
"Our estimate is that real GDP will be reported to have grown 5 percent year-to-year (YoY) in Q4FY22, implying 9 percent real GDP growth in FY22. But this headline growth will be despite the large discrepancy between the current account balance and the inflation-adjusted net exports of goods and services (the latter having subtracted 3pp from real GDP growth in FY22)," said ICICI Securities.
The brokerage firm added it will provide a large cushion to be adjusted in the subsequent year(s), as real GDP will have been artificially under-estimated in FY21 and FY22. In the first half of FY23, the brokerage firm expects growth to remain export-led, with domestic demand also benefitting from the low base of Q1FY22 (when India was hit by serial lockdowns in different states during the second wave of covid).
ICICI Securities estimates that the fiscal deficit in FY23 will be only 5.6 percent of GDP (much lower than the official estimate of 6.2 percent of GDP) as direct tax revenues in FY22 have already exceeded the FY23 projections.
The recently-announced cuts in excise duties will not alter that outlook, as corporate and personal income tax revenues stay strong, as do GST revenues. The government’s substantially lower borrowing requirement (especially in the second half FY23) will help crowd in more private investment, delivering 8.2 percent real GDP growth in FY23.
"The low, globally competitive corporate tax rate (25 percent, and just 17 percent for new manufacturing units), more flexible labour market (aided by the contract labour law) and the production-linked incentive (PLI) scheme will draw in substantially more fixed investment across a broadening swathe of industry, enabling real GDP to accelerate to 9 percent in FY24, aided by the cushion of FY22 statistical discrepancies," said ICICI Securities.
Disclaimer: The views and recommendations made above are those of the broking firms and not of MintGenie.