CRISIL lowers India's GDP prediction for FY23 by 50 basis points

1 Jul 2022 , 01:01 PM

From 7.8% earlier in the year, CRISIL has decreased its prediction for India’s real gross domestic product (GDP) growth to 7.3% for the current fiscal year.

The main pull factors, according to the report, are “increasing oil costs, slower global demand for India’s exports, and higher inflation.” “Inflation lowers purchasing power and would have an adverse effect on a recovery in consumption, which makes up the majority of GDP and has been declining for some time. A typical monsoon forecast and a recovery in contact-intensive services are anticipated to provide some relief.

Inflation based on the consumer price index is expected to average 6.8% this fiscal year, up from 5.5% last year, according to the house. The impact of the heatwave on domestic food production, along with ongoingly high input costs and foreign commodity prices, will be the main drivers of the broad increase in prices.

According to the report, India’s current account deficit will increase from 1.2% of GDP in the previous fiscal year to 3% of GDP this fiscal year as a result of rising commodity prices, slower global growth, and supply chain bottlenecks.

Due to an expanding trade deficit, outflows of foreign portfolio assets, and the strengthening of the dollar, the rupee’s currency rate will remain volatile with a depreciation bias in the short term, according to CRISIL.

It anticipates that the rupee exchange would stabilize at 78 to the dollar by March 2023, up from 76.2 to the dollar in that month.

The pandemic-induced severe recession of the Indian economy a few years ago is now being reversed. The central bank forecasts that the economy will grow by 7.2% this fiscal year.

The rupee has fallen to historic lows as a result of the global macroeconomic and financial market volatility, which are a drag on the economy. Additionally, inflation is still above target, which has caused the central bank to raise policy rates.