In next 3-5 years, 6.5% GDP growth is par: Bibek Debroy

In 2022-23, the real GDP growth was 7.2%. This was higher than what many people had expected. Many forecasters underestimated India’s growth recovery and momentum. They underestimated the Q4 growth figure of 6.1% too. As one looks forward to 2023-24, one discerns the same syndrome. In 2022-23, outside government, predictions were generally reluctant to cross that mental threshold of 7%. It was almost as if that was a price point for a product, with 6.9% preferred to 7.1%. Notice that, given the uncertainty, no one has a proper predictable model. Any forecast is at best a guess, around a band. Citing a decimal point suggests a precision that all forecasts lack. Having said that, the mental block in 2023-24 has moved to 6%. Yes, compared with the situation before the 2022-23 numbers came in, most forecasts have jacked up numbers by between 0.3% and 0.5% — to just over 6%.

These are forecasts outside the government. Why are they a tad pessimistic? El Nino, export slowdown because of Europe and North America, a higher base, uneven rural consumption, slower growth in mining and quarrying — take your pick. No one suggests India is decoupled, meaning the real sector, not the financial. The question is, do these become constraints at 6.5% or at 7.5%?

Consider several indicators and you can take your pick again — GST collections, manufacturing PMI, services PMI, UPI transactions, PLI successes, air traffic, sales of passenger vehicles, services exports, gross fixed capital formation, higher capacity utilisation, lower inflation (wi tha bearing on consumption), government capital expenditure, lower crude oil prices, revival in construction and contact-intensive sectors.

Growth in 2023-24 is an aggregate of growth in four quarters and, obviously, Q1 figures will be higher than the other three. Having said that, what kind of growth can we expect in 2023-24? As I have said, this is largely a subjective call, weighing the pluses against the minuses. As was the case in 2022-23, because of underestimation biases, actual growth will probably be about 0.5% higher than what private forecasters expect. In other words, one should expect something between 6.5% and 7%. Before the 2022-23 numbers came in, one would have expected that band to be between 6% and 6.5%. A 6.5% mid-point is in line with what CEA has projected.

This also has a bearing on India’s medium-term growth prospects. Of course, the medium-term needs to be defined. The next three-five years is different from the five years leading up to 2047. As economies grow, growth rates tend to slow down.

In the next three-five years, 6.5% should be par, despite the global uncertainties mentioned. The reason is simple. Compared with many economies, India has multiple engines of growth, not merely exports. Government has enough fiscal leeway to maintain capital expenditure, notwithstanding unsustainable revenue expenditure in many state governments. Private investments have picked up and Indian manufacturing is becoming part of global supply chains. (There is technology and the green energy bit, too.)With broad-based recovery and lower inflation and interest rates, spliced with provision of basic necessities, it is just a matter of time before private consumption picks up. One can always pick a sector and point to the gaps, for instance, two-wheelers. However, what’s important is the big picture and that’s one of 6.5%, facilitated by assorted supply-side reforms the government has introduced. Such reforms work with a time-lag and postCovid, the evidence is that the time-lag has worked itself out. It is a different matter that the aspirational rate of growth should be between 7% and 7.5%. But that better shouldn’t be construed as an enemy of the present good.