RBI slashes FY23 GDP forecast to 6.8% on global slowdown

The Reserve Bank of India (RBI), in its bi-monthly Monetary Policy Committee (MPC) meeting announcement today, revised down the current financial year GDP growth forecast, in line with estimates suggested by global international agencies and financial institutions. Projecting the country's full fiscal year economic growth below 7%, the RBI said the real GDP growth for 2022-23 is estimated at 6.8%, with Q3 at 4.4% and Q4 at 4.2%. The MPC has said the reasons for slashing the FY23 GDP target are headwinds emanating from protracted geopolitical tensions, global slowdown and tightening of global financial conditions.

The revision comes after MPC in its previous meeting held in September 2022 also lowered the real GDP growth forecast to 7% from 7.2% expected earlier. This time's projection for the third and fourth quarters is also down from 4.6% predicted earlier.

In his speech, RBI governor Shaktikanta Das said GDP growth in India remains resilient and inflation is expected to moderate; but the battle against inflation is not over. "Pressure points from high and sticky core inflation and exposure of food inflation to international factors and weather-related events do remain," he added.

Das said the RBI will keep "Arjuna’s eye" on the evolving inflation dynamics. "Our actions will be nimble and in the best interest of the economy. The aspect of growth will obviously be kept in mind," he added.

Notably, in the recently released government data, the National Statistical Office (NSO) said the real GDP posted a growth of 6.3% y-o-y in Q2 FY23, driven primarily by private consumption and investment. The government's GDP estimate was is in line with the MPC's expectations. The first quarter of the fiscal year had seen the country's GDP growing at 13.5%.

For the next fiscal year, the real GDP growth is revised to 7.1% for Q1:2023-24 from 7.2% earlier and at 5.9% for Q2 FY24. Das said that even after this revision in its growth projection for 2022-23, India will still be among the fastest-growing major economies in the world.

The MPC this time has hiked the key repo rate by 35 basis points to 6.25% as challenges from the global downturn and inflation continue. The repo rate hike is in line with the market expectations amid dwindling macroeconomic situations and the depreciating rupee against the U.S. dollar. With the latest rate hike, the RBI has hiked the repo rate by 2.25 percentage points in half a year.

On inflation, Das said its trajectory has largely evolved, in line with its June 2022 outlook. "Going forward, food inflation is likely to moderate with the usual winter softening and the likelihood of a bountiful rabi harvest, but pressure points remain in the form of prices of cereals, milk and spices in the near term. The main risk is that core inflation (CPI excluding food and fuel) remains sticky and elevated." He said overall, the CPI price momentum remains high. "Risks from adverse weather events add to uncertainty in the outlook."

In a good sign for India, the World Bank on Tuesday released its India Development Report, saying the Indian economy is expected to grow at 6.9% in 2022-23. The estimate was 0.4 percentage points higher than the previous forecast done by the Bank in October 2022.