Frail global demand may challenge FY24 growth outlook, a finance ministry report said. The factors that can constrain the pace of growth include escalation of geopolitical stress, enhanced volatility in global financial systems, sharp price correction in global stock markets, high magnitude of El-Nino impact, and modest trade activity and FDI inflows.

“And if these developments deepen and dampen growth in the subsequent quarters, the external sector may challenge India’s growth outlook for FY24,” the finance ministry said in its Annual Economic Review for 2022-23.

High import prices and elevated import demand amid weak external demand have resulted in negative net exports in real terms that have shown a sharp downward trajectory and prevented India’s real Gross Domestic Product (GDP) growth from crossing the pre-pandemic trend trajectory, the finance ministry said.

“Enabled by the release of pent-up demand, real Private Final Consumption Expenditure (PFCE) has surpassed the pre-pandemic trend trajectory. Similarly, a large step-up in public sector capex over the last three years and a favourable credit situation in the country have contributed to real Gross Fixed Capital Formation (GFCF), also surpassing the pre-pandemic trend trajectory,” it said.

“However, the faster growth in post-pandemic economic activity in the Indian economy and high import prices have kept the import demand elevated.

“As a result, the negative net exports in real terms have shown a sharp post-pandemic downward trend trajectory as compared to a slightly upward pre-pandemic trend trajectory.

This has prevented the post-pandemic real GDP trend line from crossing the pre-pandemic trend trajectory, although it is very near to doing so.

Given the decline in prices of India’s import basket and a sustained surge in service exports, the net exports gap is expected to become smaller sooner than earlier expected. This will enable real GDP to surpass its pre-pandemic trend trajectory in the near future,” the report added.