India Ratings cuts FY23 GDP forecast to 7-7.2% citing Ukraine war
Mumbai:
India Ratings has cut its GDP growth forecast for FY13 from 7.6 per cent to 7-7.2 per cent, citing rising uncertainty over the Russia-Ukraine war and waning consumer sentiment.
As the duration of the war remains uncertain, in the first scenario, crude oil prices may rise for three months, and in the second, for six months, Ind-Ra said.
If crude oil prices remain high for three months, FY23 GDP may grow by 7.2 per cent; Its Chief Economist Devendra Pant and Chief Economist Sunil Kumar Sinha said on Wednesday that if this goes on for a long time, the growth rate will come down to 7 per cent from 7.6 per cent.
He said the size of the economy in FY13 would be 10.6 per cent and 10.8 per cent below the trend value of GDP for FY13 in these two scenarios respectively.
On Tuesday, another rating agency ICRA had also projected a similar growth rate for the economy.
Given that consumer demand, as measured by private final consumption expenditure, decelerated in FY22, despite sales of select consumer durables showing signs of revival during the festive season, the report casts doubts on whether to take it or stay where it is now given. Domestic sentiments are also easing on concerns of rising inflation and non-essential/discretionary spending.
Consumer sentiment is likely to decline further due to increase in commodity prices/consumer inflation due to Ukraine war.
Ind-Ra expects private consumption spending to grow at 8.1 per cent and 8 per cent in FY 2013 in scenarios 1 and 2, respectively, as against its earlier estimate of 9.4 per cent.
Similarly, investment demand is the second largest component (27.1 percent) of GDP from the demand side, as measured by gross fixed capital formation. Private capex by large corporates, which has been in and out of over the past several years, has shown some promise recently, given the rollout of a production-linked incentive scheme and increased manufacturing sector capacity utilization driven by higher exports.
However, he expects a jump in commodity prices and disruption in the global supply chain due to the Ukraine war will weigh on sentiments. This capex can probably be avoided until more clarity emerges regarding the conflict.
However, the government capex is unlikely to be breached. The government is showing its resolve to do the heavy lifting by raising the capital expenditure ratio for FY 2012 to 2.6 per cent, from 2.5 per cent in Budget Revised Estimates and 2.9 per cent for FY13, he said. And believe that overall gross fixed capital formation growth won’t be affected much and will grow at 8.8 percent in both scenarios in FY13, 10 basis points (bps) higher than their January forecast.
On the inflation front, he warned that a 10 per cent rise in oil prices without factoring in currency depreciation is expected to push retail inflation up by 42 bps and wholesale inflation by 104 bps. Similarly, a 10 per cent jump in sunflower oil without factoring in currency depreciation is expected to raise retail inflation by 12.6 bps and wholesale inflation by 2.48 bps.
These events could push up retail and wholesale inflation by 55 bps and 109 bps, respectively. Retail fuel prices, which were stalled since early November 2021, have been rising since last week and have risen by around Rs 5 so far. Based on this slowing growth, he estimates retail inflation in these scenarios to average 5.8 per cent and 6.2 per cent, respectively, as against the earlier forecast of 4.8 per cent.
Due to higher import bills for commodities such as mineral fuels and oils, gems and jewellery, edible oils and fertilisers, they expect the current account deficit to come down to 2.8 per cent of GDP, from 2.3 per cent estimated earlier. A $5 per barrel increase in crude oil prices would increase the current account deficit by $6.6 billion.