Crisil Ltd. has lowered India's real GDP growth forecast to 7.3% for 2022-23 as against 7.8% estimated earlier, due to pricier crude, slowing exports and higher inflation.
The revised forecast is in line with the Reserve Bank of India's estimate.
According to the ratings agency, several negatives--high commodity prices, elevated freight prices, slower exports and private consumption--are weighing on economic growth. “The only bright spots are the uptick in contact-intensive services and forecast of a normal and well-distributed monsoon."
India's retail inflation rate, seen at 6.8% in FY23 as against 5.5% in FY22, reduces purchasing power and weighs an revival of consumption. Factors contributing to the broad-based rise in inflation will include the impact of this year's heatwave on domestic food production, coupled with persisting high international commodity prices and input costs, Crisil said.
Higher commodity prices, slowing global growth and supply chain snarls will impact India's current account, widening the deficit to 3% of GDP in FY23 from 1.2% in FY22.
This will put pressure on the currency. Crisil sees the rupee at 78/dollar in March 2023, compared to 76.2/dollar in March 2022.
“The rupee-dollar exchange rate will remain volatile with a depreciation bias in the near term due to a widening trade deficit, FPI outflows and strengthening of the US dollar index."
The agency expects global crude oil prices to average $105-110 per barrel in FY23. That's 35% higher than last fiscal and the highest since 2013.
“High commodity prices have a domino effect on India. As the terms of trade worsen with a rising import bill, imported inflation surges."
With inflation rising, the RBI is expected to hike the repo rate by another 75 basis points during FY23, on top of the 90 bps already effected.
Higher interest rates, however, will not dent growth prospects in a big way as real interest rates are likely to remain lower than pre-pandemic levels, Crisil said. Also, monetary policy actions get transmitted with a lag, it said.
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