India’s GDP is set to grow by 7.4% in 2022-23: FICCI Economic Outlook Survey
India’s gross domestic product (GDP) is expected to grow by 7.4% in the current fiscal year 2022-23, according to the FICCI economic outlook survey.
The growth forecast for agriculture and related activities has been set at 3.3% for 2022-23, while the industry and services sectors are expected to grow by 5.9% and 8.5% respectively in the coming months. exercise course.
However, he said that “downside risks to growth remain elevated. While the threat of the pandemic remains present, the continuing Russian-Ukrainian conflict poses a significant challenge to global recovery. »
The latest round of FICCI’s Economic Outlook Survey presents a median annual GDP growth forecast for 2022-23 at 7.4% – with a minimum and maximum growth estimate of 6.0% and 7.8 % respectively.
This series of FICCI economic outlook surveys was conducted in the month of March 2022 and drew responses from leading economists representing industry, the banking and financial services sector. Economists were asked to provide forecasts for the main macroeconomic variables for the year 2022-23 and for the quarters of the fourth quarter (January-March) of the financial year 22 and the first quarter (April-June) of the exercise 23.
The current conflict should further aggravate the rise in prices thanks to imported raw materials. The average inflation estimate based on the wholesale price index for the fourth quarter of 2021-2022 has been set at 12.6%.
CPI-based inflation is projected at 6.0% in Q4 2021-22 and 5.5% in Q1 2022-23; and has a median forecast of 5.3% for 2022-23, with a minimum and maximum range of 5.0% and 5.7% respectively.
CPI-based inflation exceeded the RBI target range in January and February 2022 and is expected to see some respite in the next fiscal year. Unsustainably high international commodity prices are expected to stabilize in the future.
Economists were also invited to speak on certain topical issues. Given the recent escalation in geopolitical tensions, participants were asked to share their assessments on the global and Indian economic situation under the current circumstances. In addition, the expectations of economists were solicited on the next monetary policy which will be announced on April 8, 2022.
Participants felt that while it is difficult to assess the exact impact of the conflict on the global economy, much will depend on the continuation of the conflict and the policy responses that flow from it. The sanctions imposed on Russia by European countries and the United States are having an impact on both the real sector and the financial sector.
The overall situation remains volatile and the outlook is uncertain with heightened downside risks. Indicative estimates provided by participants suggest that global growth could slow by 50 to 75 basis points, further dampening the outlook for post-covid recovery.
The demand situation has not yet returned to pre-pandemic levels and any further spread of the conflict situation could worsen the global economic situation. Trade is already disrupted by a relapse in supply-side leaks and tensions over already high global commodity prices have also worsened.
Rising international commodity prices are the biggest risk emanating from the ongoing conflict, with Russia and Ukraine being global suppliers of key commodities. The prolongation of this conflict will further affect supplies of key raw materials, including crude oil, natural gas, food, fertilizers and metals.
Nevertheless, participants estimated that global inflation should peak in the first half of 2022 and moderate thereafter. The easing in price levels in the second half of the year will be supported by a slowing Chinese economy and an overall moderation in global growth momentum, a drop in pent-up demand and a normalization of politics monetary policy/rate hikes by the US Federal Reserve.
As for India, the country should not remain unscathed. Given that India remains a net importer to meet its energy needs, the sharp rise in crude oil prices represents a major shock to India’s macroeconomic framework. Moreover, the impact on the economy is expected to be more severe if the conflict is prolonged.
Participants were of the view that inflation also continues to be the most significant risk for India. Soaring crude oil prices are likely to have a negative impact on India’s macro-economies. Rising oil prices coupled with the sharp drop in the value of the rupee are inflating India’s import bill, adding to pressure on the current account.
Additionally, economists said private consumption has been the weakest link in the recovery. Consumer sentiment has been tepid for most of 2021-22. With inflation escalating, purchasing power is further constrained, especially for low and lower middle income households.
The Russian-Ukrainian crisis has amplified the cost pressures facing producers. This will further delay private investment as average capacity utilization remains below the level that could trigger new investment. The limited ability to pass on rising input costs erodes business profitability. Escalating costs can affect cash flow in the future and weigh heavily on their investment plans.
In addition, exports which provided a cushion to the loss of domestic output should be moderated as developed countries also experience a slowdown and move towards the withdrawal of fiscal stimulus. Private demand and investment are expected to be front and center in 2022-23 to guide growth.
Nevertheless, despite the challenges, the Indian economy remains well positioned over the medium term.
Participants said that as inflation concerns ease, public investment spending will pile up in private investment spending. The recovery would depend on government investment spending focused on infrastructure. The need of the hour is to anticipate spending so that the incipient signs of recovery do not get derailed.
Economists felt that at this stage, fiscal policy should take priority and inflationary pressures could be contained through excise/subsidy cuts. This will be important to preserve private consumer spending as inflationary pressures intensify.
Regarding monetary policy, there was a unanimous view that the Reserve Bank of India will refrain from undertaking a policy reversal in the next monetary policy to be announced on April 8, 2022.
Although the upside risks to inflation have increased with the escalation of the conflict between Russia and Ukraine, and growth-inflation dynamics have also been taken into account, the monetary policy committee should examine the short-term temporary spikes in inflation.
The RBI is expected to continue to support the ongoing economic recovery by keeping the repo rate unchanged at the April announcement. Growth impulses are still nascent and consumer confidence has been subdued and has yet to recover to pre-pandemic levels.
Soaring prices for crude oil and industrial inputs put pressure on prices through imported inflation. Although the shift to consumers has been limited so far, economists expect a shift from next fiscal year. Economists were of the view that the Reserve Bank of India would consider reversing its stance in the second half of the current year (2022) and a rate hike of between 50 and 75 basis points can be expected. by the end of this exercise.
Since inflation in India has been supply driven, government support in terms of fiscal measures such as reduction of excise duty and VAT on petrol and diesel by the Center and States could alleviate some immediate concerns about inflation.
In addition, continued support to MSMEs remains essential, especially given the impact of the ongoing conflict on small businesses. It is important that MSME cash flows are in place to maintain operations. There is a need to ensure that additional funds for MSMEs are available and it is suggested that banks reduce the cash margin from 25% to 10-15%.
Furthermore, the work cycle of MSMEs in many cases extends beyond a period of 90 days. It is therefore suggested that there is a need to reconsider the 90 day limit provision for classifying their arrears in the NPAs and that the limit be increased to 180 days.