Analysts slash India's GDP forecast amid high inflation, recession fears

On Thursday, ADB lowered India's growth forecast from 7.5 per cent to 7.2 per cent for FY23. Earlier on July 18, US-based Morgan Stanley also slashed India's GDP growth forecast to 7.2 per cent

economy, growth, gdp, coronavirus, company
Illustration: Ajay Mohanty
BS Web Team New Delhi
3 min read Last Updated : Jul 21 2022 | 2:08 PM IST
High inflation, subsequent monetary tightening and looming global recession have led to various analysts cutting India's GDP forecast for 2022-23(FY23). On Thursday, the Asian Development Bank (ADB) lowered India's growth forecast from earlier 7.5 per cent to 7.2 per cent for FY23. 

On July 18, US-based Morgan Stanley also slashed India's GDP growth forecast for FY23 from 7.6 per cent to 7.2 per cent. For FY24, the growth estimates have been set at 6.4 per cent.

Days before Morgan Stanley, Nomura, another financial service company, lowered the GDP growth forecast from 5.4 per cent to 4.7 per cent for the current financial year. In June, World Bank also slashed the forecast from 8 per cent to 7.5 per cent. 

Higher oil prices and surging inflation figures have been the top reasons for the agencies to announce the revision in the figures. Manila-based ADB also revised India's retail inflation forecast for FY23 from 5.8 per cent to 6.7 per cent, on Thursday, in line with RBI's projection of 5.7 per cent.

FICCI, an industry group, also revised India's GDP growth forecast downwards to 7 per cent from 7.4 per cent on Thursday, blaming geopolitical uncertainty and its impact on the Indian economy.

 As Russia and Ukraine are major suppliers of oil and other commodities like wheat and fertilisers to the world, the ongoing war in Ukraine has created supply-side constraints, pushing inflation figures higher.

Also, oil prices have surged from $40 per barrel in July 2020 to $100 per barrel in July 2022. Oil is used in the transportation of all goods across the globe, and a rise in its price generally snowballs into a hike in the general level of prices in the economy. 

As a result, the retail inflation figures in India have stayed above the Reserve Bank of India's (RBI's) upper tolerance level of 6 per cent for six consecutive months. For three months, it has stayed above 7 per cent.

In April, May and June, the retail inflation figures stood at 7.8 per cent, 7.04 per cent and 7.01 per cent, respectively.

To tame inflation, the RBI has also hiked the benchmark interest rate, repo rate, by 90 basis points since May. After a two-year hiatus, the repo rate was hiked by 40 basis points to 4.4 per cent on May 4, in a surprise announcement.

Just a month after that, on June 8, the repo rate was hiked further by five basis points to 4.9 per cent.

The central bank had also slashed India's GDP growth forecast for FY23 from 7.8 per cent to 7.2 per cent in April. In June's Monetary Policy announcement, the forecast was kept the same.

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Topics :GDP forecastCPI InflationRussia Ukraine ConflictAsian Development BankRBIWorld Bank India GDPIndia GDP growthGross domestic product

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