new Delhi:
Morgan Stanley has said that higher oil prices, tighter financial conditions and trade due to the Russia-Ukraine conflict will affect India’s GDP in the coming fiscal year 2022-23, while slashing growth forecast by 50 basis points to 7.9 per cent. percentage is done.
In addition, it has raised the retail inflation forecast to 6 per cent and expects the current account deficit to widen to 3 per cent of GDP.
“Even while we expect the cyclical recovery trend to continue, we expect it to be softer than before,” it said in a report, “we believe that Ongoing geopolitical tensions amplify external risks and provide a stalemate impetus to the economy”.
India is affected by three major channels – high prices for oil and other commodities; Business, and tight financial conditions, affect business/investment sentiment.
“Building in higher oil prices, we reduce our F23 GDP growth forecast by 50 bps to 7.9 percent, raise our Consumer Price Index (CPI) inflation forecast to 6 percent, and expect the current account deficit to remain at 10%. will rise to year’s high of 3 per cent of GDP,” it said.
India is 85 per cent dependent on imports to meet its oil needs and the recent surge in international oil prices, which pushed rates to a 14-year high of $140 a barrel before retreating, has resulted in You will have to pay more for the commodity. In addition, higher prices will result in inflationary pressures.
The major channel of impact for the economy would be high cost-inflation, which would feed widespread price pressures, weighing on all economic agents – households, business and government.
On India’s exposure to macro stability risks, Morgan Stanley said that even though macro stability indicators are expected to deteriorate, reduction of domestic imbalances and a focus on improving productivity will help mitigate the risks.
“As such, we do not expect that fiscal or monetary policy will need to be disruptively tightened to manage macro stability risks. The risk will arise from a further sustained rise in oil prices, leading to macro stability and currency There will be a quick drop in volatility.” said.
The brokerage expected a hike in the repo rate at the June meeting of the Monetary Policy Committee of the Reserve Bank of India (RBI).
“But we now expect the April policy to mark the process of policy normalization with a reverse repo rate hike. However, if the RBI delays its normalization process, the risk of a disruptive policy rate hike will increase. There appears little room for the year. Policy incentives to support growth given the high deficit and debt levels – we see the prospect of a modest fuel tax cut and reliance on the National Rural Employment Program as an automatic stabilizer, Morgan Stanley said.
The report saw an upside risk of 0.5 per cent of GDP for the fiscal deficit target of 6.4 per cent of GDP for 2022-23 (April 2022 to March 2023).
“We see risks to the downside for growth and upside for inflation and CAD. Again, the key risk would be a sharp and sustained rise in oil prices, raising macro stability concerns and leading to disruptive monetary tightening. Further, risks may arise if global growth conditions further weaken, which will worsen India’s exports and capex cycle,” the agency said.