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India is expected to be one of the major beacons of economic growth in the calendar year 2023, driven by strong domestic demand and government expenditure, said KPMG in its Global Economic Outlook report.

This despite a sluggish growth of 4.4 per cent during the last quarter of calendar year 2022 as compared to 6.3 per cent in Q3 2022, the report said.

"The efforts of the Union Budget 2023-24 to improve the disposable income of taxpayers in the country is expected to boost consumption via an increase in discretionary spending," it notes.

In addition, the strong capital expenditure push provided by the Union Budget, with an increased outlay of 37.4 per cent in comparison to the fiscal year 2022-23, is expected to drive growth, investments, and job creation.

According to the report, the Indian government's reduction of over 39,000 compliances and decriminalisation of over 3,400 legal provisions will also foster the ease of doing business in the country.

Strong credit growth and resilience in financial markets are further expected to create an environment that supports investments.

"A high unemployment rate, however, remains a concern for India, standing at 7.5 per cent in February 2023. Inflation, which was falling since October 2022, spiked again to 6.5 per cent in January 2023 driven by high food prices, breaking the Reserve Bank of India's (RBI) upper tolerance limit, though still below the elevated levels seen during the first half of 2022-23," the report said.

The RBI is focused on the withdrawal of accommodation aimed at controlling inflation, with policy repo rates hiked six times since May 2022.

According to the report, core inflation is expected to be affected by the continued transfer of input costs to output prices, particularly in the services sector. However, input costs and output prices are expected to ease in the manufacturing sector.

Taken together, the RBI projects inflation at 6.5 per cent for 2022-23 and 5.3 per cent for 2023-24.

A robust domestic demand and favorable government initiatives are expected to help India remain as one of the fastest growing major economies globally.

However, external challenges, such as a slowdown in the global economy and monetary tightening in advanced economies, are factors that could affect the country's growth, KPMG said.