India's CAGR expected to rise by 4.6% during FY20-FY26: Report

The CAGR of India’s gross domestic product (GDP) fell to 2.7 per cent during FY20-FY23 from 6.3 per cent during FY16-FY20. The same is likely to grow at a CAGR of 4.6 per cent during FY20-FY26 due to the government’s thrust on infrastructure investment coupled with various policy measures. In fact, India with a CAGR growth in the range of 4.6-5.1 per cent would be the fastest growing economy among all the G20 nations during FY26-FY28. 

IMF’s World Economic Outlook Database report has pegged India’s GDP growth at 6.1 per cent YoY in 2023/FY24 (2022/FY23: 6.8 per cent). Owing to the disruption in economic activities across the globe during the COVID-19 outbreak, Ind-Ra opines YoY growth comparisons post COVID-19 could be misleading. A more meaningful comparison, therefore, would be to look at long-term growth.

The world economy is expected to grow 2.7 per cent year-on-year (YoY) in 2023, slowing down from 3.2 per cent YoY in 2022 with key economies such as Germany and Italy likely to witness recession in 2023.

During FY23-FY24, Indian exports are likely to witness demand pressure considering the overall growth slowdown being witnessed by the global economy. In September 2022, India’s merchandise imports grew 8.7 per cent YoY and merchandise exports 4.9 per cent YoY. As a result, goods trade deficit grew 14.4 per cent YoY to $25.7 billion in September 2022. However, the cushion from a trade surplus in the services account kept the overall trade deficit under check. Services sustained a trade surplus of $10.6 billion in September 2022, growing 16.9 per cent over a year-ago period. 

Although the industrial activity points towards recovery, it continues to be weak and uneven. Factory output, though contracted 0.8 per cent YoY in August 2022 after a span of 17 months, in cumulative terms, grew 7.7 per cent during April-August 2022. However, the worrying part is that the factory output in level terms, after a gap of five months, dipped below the pre-COVID level (February 2020) in August 2022. Even at use-based classification, the output level of most sectors, except that of infrastructure and consumer durables, was below the pre-pandemic level in August 2022. In fact, the output of consumer non-durables in August 2022 was just 87.1 per cent of the pre-pandemic level. However, given the healthy YoY growth of 7.9 per cent in the core sector in September 2022, Ind-Ra expects the industrial output growth to rebound to around 5 per cent during the month. 

Ports cargo and railways freight traffic witnessed strong growth of 14.6 per cent YoY and 9.1 per cent YoY, respectively, in September 2022. However, the air cargo traffic has yet not recovered. It contracted 0.5 per cent YoY in September 2022. Even air and rail passenger traffic, despite recovery, was trailing the pre-pandemic levels. The non-food credit grew at a strong 15.7 per cent YoY in September 2022, led by broad-based double-digit growth in all the sub-heads (industry, personal loans, services, etc).

Inflation, both at the consumer and wholesale levels, continues to be high. Retail and wholesale inflation came in at 7.4 per cent and 10.7 per cent, respectively, in September 2022. Ind-Ra expects the retail inflation to soften to around 6.5 per cent in October 2022 as the base effect kicks in.

ALCHEMPro News Desk (NB)