EY India has said that amid the global economic slowdown, India will rely on domestic growth drivers and an infrastructure support strategy in the medium term to achieve sustained real GDP growth.
“As the global economic slowdown continues, India may have to rely largely on domestic growth drivers. In this context, the Government of India's strategy is to continue on the path of fiscal consolidation by relatively reducing revenue expenditure and creating fiscal space to increase capital expenditure.” “A strategy focused on supporting infrastructure growth is the most desirable strategy for a medium term sustainable real GDP growth,” EY India said in its Economy Watch for the month of February.
“If public debt and fiscal deficit relative to GDP fall, the government's claim on the available investable surplus in the economy would fall, which is expected to lead to a reduction in interest rates and thus encourage private investment,” the report adds.
The report points out that if the debt-to-GDP ratio were to fall and at the same time the effective interest rate on government debt were to fall somewhat, the share of interest payments in revenue expenditure would also decline over time. “This would create further scope for the government to further increase its infrastructure spending,” says EY.
EY noted in the report that multilateral agencies' growth forecasts for India may be improved later. “Based on the IMF’s January 2024 revision, India’s growth for the three years from FY24 to FY26 is forecast at 6.7%, 6.5% and 6.5%, respectively,” EY said.
“Earlier, in their October 2023 edition of the World Economic Outlook, they had forecast a growth rate of 6.3% each for FY27-29. Even these growth rates could be revised upwards later if India sticks to the current strategy of combining expansion of capital expenditure with fiscal consolidation,” it added.
