India’s economy will likely grow 7.1% in FY23 thanks to a solid performance within the manufacturing, services and farming industries.

This is according to a report published this week by CareEdge Ratings, which added that government spending will play a key role in boosting the growth rate, whilst the private investment cycle will be bolstered by improving industrial capacity utilisation levels.

The report stated: “FY23 started on a good note on account of improved levels of economic activity. Various high frequency economic indicators such as GST collections, e-way bill registrations and credit growth have performed well during the first four months of FY23.”

In addition, the record high budget allocation of 7.5 trillion Rupees towards capital expenditure is set to fuel the economy’s revival by bolstering private sector investment. “The private investment cycle is likely to gain momentum with improvement in capacity utilization levels. Some of the credit growth to industries could be because of the higher working capital requirement, but it is also a reflection of improved investment demand," the report added.

In the first quarter of FY23, the share of the private sector’s proposal for new investments rose almost 91%, up from 78% the quarter before, as per the Centre for Monitoring Indian Economy (CMIE) data, Mint reports.

Nevertheless, the uncertainty surrounding the economic and financial environment would impact private investors’ sentiment, the findings warned.

Although CareEdge Ratings forecasts the agricultural sector to show steady growth in FY23, the services sector is set to make a strong rebound as Covid restrictions ease.

“With improved mobility, passenger and freight traffic (both air and railways) have grown significantly. Foreign tourist arrivals have jumped more than 21 times in May 2022 YoY with receding fears of Covid-19. However, the slowdown in the US economy poses risk for India’s IT sector. Against this background, we expect the services sector to register a growth of 8.7% in FY23," the report added.