Virendra Pandit
New Delhi: Higher oil prices, diminished export demand, and high inflation may lower India’s actual GDP growth estimate in the current financial year (2022-23) from 7.5 percent to 7.3 percent, domestic rating agency CRISIL said on Friday.
This downward revision is slightly higher than the Reserve Bank of India (RBI)’s growth estimate of 7.2 percent for this fiscal year.
The rating agency listed several negatives, including high commodity prices, elevated freight prices, drag on exports as global growth projections get lowered, and the most significant demand-side driver of private consumption remaining weak, according to the media reports.
The only bright spots, it said, are the uptick in contact-intensive services and the forecast of a regular and well-distributed monsoon beginning next week.
Inflation, pegged to average at 6.8 percent in FY23 as against 5.5 percent in FY22, reduces purchasing power and would weigh on a revival of consumption, the most significant component of GDP, which has been backsliding for a while.
Factors contributing to the broad-based rise in inflation include the impact of this year’s heatwave on domestic food production, coupled with persisting high international commodity prices and input costs, CRISIL said.
The agency also said that with higher commodity prices, slowing global growth, and supply chain snarls, the current account will be impacted and estimated the current account deficit to widen from 1.2 percent in FY 22 to 3 percent of GDP in FY23.
This will put pressure on the currency, and the rupee is estimated at 78 to the US dollar in March 2023, compared to 76.2 in March 2022.
The rupee-dollar exchange rate will remain volatile with a depreciation bias in the near term because of a widening trade deficit, foreign portfolio investment (FPI) outflows, and strengthening of the US dollar index (owing to rate hikes by the US Federal Reserve or Fed, and safe-haven demand for the dollar amid geopolitical risks), it said.
The rating agency expects the global crude price to average between USD 105 and 110 per barrel in FY23, which is higher by 35 percent compared to the last fiscal year and will be the highest price since 2013.
High commodity prices have a domino effect in India. As the terms of trade worsen with a rising import bill, imported inflation surges.
With inflation rising, the RBI may hike the rate by another 75 basis points during the fiscal year on top of the 90 basis points hikes already announced.
It, however, said that the rising interest rates would not dent growth prospects in a big way as actual interest rates are likely to remain lower than the pre-pandemic levels, and monetary policy actions get transmitted with a lag.