CRISIL reiterates India’s 7.8% GDP growth next fiscal, with risks tilted to the downside

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Ratings agency CRISIL has reiterated its December 2021 forecast of India’s gross domestic product (GDP) growth at 7.8% in fiscal 2023, saying any potential upside due to the early end of a mild third wave of Covid-19 infections will be offset by the ongoing geopolitical strife stemming from Russia’s invasion of Ukraine, which is creating a dampening effect on global growth and pushing up oil and commodity prices.

The risks to growth are also tilted to the downside, it said.

“Spiking commodity prices, especially of crude oil, will have a bearing on India’s macros, including the current account deficit and inflation. These would create headwinds to growth. The good part is, the health of the financial sector is on the mend, with better capitalisation, profitability and asset quality,” Amish Mehta, Managing Director & CEO, CRISIL Ltd, said at CRISIL’s flagship event, ‘India Outlook, Fiscal 2023’,

That, and enhanced public spending on infrastructure, private investments driven by the Production-Linked Incentive scheme, and a chunk of green capex should deliver some good-quality tailwinds, Mehta aded.

According to CRISIL, the average Consumer Price Index (CPI)-based inflation, it will stay firm at 5.4% next fiscal — if the price of crude oil averages $85-90/barrel — and takes into account the excise duty cuts announced last year. However, upside risks will build if the geopolitical strife prolongs, keeping oil and commodity prices higher for longer.

Interestingly, when the price of crude oil averaged $110/barrel between fiscals 2012 and 2014, inflation was in double digits. That situation is unlikely to repeat this time due to the relatively benign domestic prices of foodgrains following sumptuous agricultural output, and comparatively lower core inflation. During that period, food and core inflation, which together have 86% weight in CPI, had averaged 9.8% and 8.6%, respectively.

Private consumption, which is the largest component of demand and has been the slowest to recover from the pandemic, will also face headwinds from high inflation. The pandemic had exacerbated the underlying weakness in private consumption seen in fiscal 2020.

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