Crisil retains GDP growth forecast at 7.3% with downside risks for FY23

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Crisil has kept its forecast for GDP growth at 7.3 percent for the current fiscal year with downside risks, and expects retail inflation to rise to a nine-year high of 6.8 percent on average on the back of the Russia-Ukraine war.

The ratings agency said on Friday that “rising oil prices, slowing global demand for India’s exports and rising inflation are major stumbling blocks,” attributing downside risks to this.

Decreased purchasing power

“Inflation reduces purchasing power and will affect a recovery in consumption – the largest component of GDP that has been declining for a while,” the report noted, adding that private consumption remains the weak link.

The agency said the only bright spots were the slight increase in connection-intensive services and the forecast of a normal and well-distributed monsoon.

Crisil, in May of this year, revised its forecast for growth in fiscal ’23 to 7.3 percent from its previous estimate of 7.8 percent. The agency expected inflation, based on the consumer price index, to average 6.8 percent in this fiscal year, from 5.5 percent in the previous fiscal year. “Local climate-related shocks affecting food supplies, even as the Russo-Ukraine war continues to put pressure on commodities around the world, have worsened the outlook,” she said.

In line with RBI expectations

This is in line with the Reserve Bank of India’s (RBI) growth and inflation expectations. The Reserve Bank of India, in June this year, kept its forecast for real GDP growth for 2022-2023 at 7.2 percent and estimated inflation at 6.7 percent. Crisil also expects the Reserve Bank of India (RBI) to raise interest rates by another 75 basis points in the remainder of this fiscal year.

“The Reserve Bank of India is expected to aggressively tighten monetary policy in the next few months to counter rising inflation and tightening global financial conditions,” it said. She added that these increases are expected to be front-loaded in the fiscal first half, given that inflationary pressures remain high for the time being. The Reserve Bank of India (RBI) has raised the repurchase rate by 90 basis points so far.