CRISIL lowers India's GDP growth forecast to 7.3% from 7.8%

1 Jul 2022 , 03:32 PM

As the rest of the globe struggles with inflation and escalating recessionary worries, CRISIL cut down India's real GDP growth forecast for 2022-23 to 7.3% from 7.8%.

S&P Global's Indian division did add that there might be other downside risks to its outlook. According to CRISIL, India's economy is affected by a wide range of issues.

Crude and commodity price

In a study dated July 1, 2022, it was said that "the apparently endless Russia-Ukraine conflict has wrought havoc in the commodities markets since while freight costs have recently decreased, they are still excessive when compared with the beginning of this year (pre-war).

This implies that a protracted conflict will preclude any significant change. This results in greater import costs and rising inflation, particularly for India. India is a significant consumer of crude oil, which is anticipated to average $105 to $110 a barrel during this fiscal year, up 35% from last year and the most since 2013.

The price increase for fertilizers, which depend on natural gas as a manufacturing input, has been the highest since 2008, according to the World Bank, and the increase in energy costs over the past two years has been the greatest since the 1973 oil crisis.

Commodity price increases have a cascading effect on India. Imported inflation soars as the terms of trade deteriorate due to an increase in the import cost.

Other global factors such as Domestic private consumption, Inflation, and current account deficit also come into play.

Silver Linings:

A few bright spots, including an increase in contact-intensive services, improved tax revenues, and the prediction of a typical and evenly distributed monsoon, are noted in the study (though the steady distribution of the monsoon across the country remains to be seen).

"While greater tax revenues reflect the solid momentum recorded in the first quarter of the current fiscal, they are also partially a function of higher inflation leading to higher nominal growth," CRISIL stated. "Gross value added in commerce, lodging, transportation, etc., was still 11.3% below pre-pandemic levels in fiscal 2022. However, this sector is rebounding as the pandemic's effects fade and widespread vaccine coverage increases.