MUMBAI: Crisil has reiterated its December 2021 forecast of India’s gross domestic product (GDP) growing at 7.8% in next fiscal, FY23. The research firm said the potential upside due to an early end of a mild third wave of Covid infections will be offset by the ongoing geopolitical strife stemming from Russia’s invasion of Ukraine, which is dampening global growth and pushing up oil & commodity prices. According to Crisil, if Covid lies low, contact-based services — which have been hit the hardest and are still 10.9% below the pre-pandemic level — will rebound and provide support to people associated with these. This holds particularly for urban areas as two-thirds of contact-based services are urban-centric. Also, a normal monsoon will provide support to rural demand.
“We believe the fiscal policy will need to be deployed more aggressively than envisaged in the Union Budget for next fiscal. This can be done by increasing allocation for employment-generating schemes and food subsidy, and cutting duty on petroleum products. This can be a relief bridge for those most affected by the pandemic till such time the virtuous cycle of investment-led growth plays out in the labour market, and private consumption demand becomes self-sustaining,” said Crisil chief economist Dharmakirti Joshi.
He added that the higher price of crude oil will widen India’s current account deficit (CAD) to 2.2% in fiscal 2023. Typically, a $10 increase in the price of crude oil increases the CAD-to-GDP ratio by about 40 basis points (100bps = 1 percentage point). “The near-term impact of high oil prices on inflation, assuming a significant passthrough, will be more pronounced than on growth. However, all bets are off if oil stays around or above $100/barrel for a prolonged period,” said Joshi.
According to Joshi, the RBI may not immediately hike the repo rate in its April policy. It will first signal a change in stance from accommodative to neutral and tweak the reverse repo rate before hiking the repo rate.
“We believe the fiscal policy will need to be deployed more aggressively than envisaged in the Union Budget for next fiscal. This can be done by increasing allocation for employment-generating schemes and food subsidy, and cutting duty on petroleum products. This can be a relief bridge for those most affected by the pandemic till such time the virtuous cycle of investment-led growth plays out in the labour market, and private consumption demand becomes self-sustaining,” said Crisil chief economist Dharmakirti Joshi.
He added that the higher price of crude oil will widen India’s current account deficit (CAD) to 2.2% in fiscal 2023. Typically, a $10 increase in the price of crude oil increases the CAD-to-GDP ratio by about 40 basis points (100bps = 1 percentage point). “The near-term impact of high oil prices on inflation, assuming a significant passthrough, will be more pronounced than on growth. However, all bets are off if oil stays around or above $100/barrel for a prolonged period,” said Joshi.
According to Joshi, the RBI may not immediately hike the repo rate in its April policy. It will first signal a change in stance from accommodative to neutral and tweak the reverse repo rate before hiking the repo rate.
!function(f,b,e,v,n,t,s) {if(f.fbq)return;n=f.fbq=function(){n.callMethod? n.callMethod.apply(n,arguments):n.queue.push(arguments)}; if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′; n.queue=[];t=b.createElement(e);t.async=!0; t.src=v;s=b.getElementsByTagName(e)[0]; s.parentNode.insertBefore(t,s)}(window, document,’script’, ‘https://connect.facebook.net/en_US/fbevents.js’); fbq(‘init’, ‘593671331875494’); fbq(‘track’, ‘PageView’);
More News
Exports may grow 10-15% to $900bn in FY25 – Times of India
Large PSUs spend over Rs 50,200cr in capex in April – Times of India
L&T may exit Hyd metro as free bus rides hurt biz – Times of India