In its World Economic Situation and Prospects 2023 report, the UN said that in South Asia, the economic outlook has “significantly deteriorated due to high food and energy prices, monetary tightening and fiscal vulnerabilities” with average GDP growth projected to moderate to 4.8% in 2023 from 5.6% in 2022.
“Economic growth in India is projected to moderate in 2023, with higher interest rates weighing on investment and slower global growth weakening exports,” the UN said.
The government has estimated India’s real GDP growth in FY23 at 7% against 8.7% in 2021-22.
As per the UN, India’s annual inflation is estimated at 7.1% in 2022, exceeding the 2-6% target band set by the central bank but is expected to decelerate to 5.5% in 2023 as global commodity prices moderate and slower currency depreciation eases imported inflation. As per the report, among the large economies, the unemployment rate dropped to a four-year low of 6.4% in India as the economy added jobs both in urban and rural areas in 2022.
Recovery in the labour market has been uneven across the region, it said.
Noting that the unemployment rate in India declined to pre-pandemic levels in 2022 through stepped-up urban and rural employment, the UN said: “But youth employment remained below pre-pandemic levels,34 particularly among young women, given the pandemic’s severe impacts on economic sectors where women tend to cluster”.
The report referred to anecdotal evidence suggesting that an increasing number of foreign companies in China are considering relocating to other Asian countries. Citing examples from studies, it have the example of Apple which has accelerated plans to shift some of its production outside of China to India and Vietnam.
“A recent survey by the American Chamber of Commerce in Shanghai (2022) shows that one third of responding US companies redirected planned investment in China to other destinations in 2022, almost double the number of firms that did so in 2021,” it said.
The UN said that in about a dozen countries, including several large economies, notably, Brazil, India, Nigeria and Pakistan, estimates suggest that governments spent more than 20% of revenues on interest payments in 2022.
Emphasising that higher interest rates are leading to higher debt-servicing costs for developing countries, it said that in India, the additional interest payments would amount to 8.7% of total government expenditures, 1 percentage point higher than the share of education in the total budget in 2020.