Reserve Bank governor Shaktikanta Das-led monetary policy committee (MPC) has lowered the real gross domestic product (GDP) growth forecast for the financial year 2022-23 to 7% from 7.2% earlier. The primary reason behind cutting the GDP growth forecast is highly uncertain global financial conditions, including aggressive monetary policy tightening, high inflation and supply-chain issues.
"The world has been confronted with one crisis after another, and it has seen two major shocks -- Covid and Russia-Ukraine war -- in the past two-and-a-half years. Now, amid this, aggressive monetary policy tightening is the third shock," Das said, while announcing the monetary policy committee decisions.
The RBI governor said the MPC expects the second quarter (July-September FY23) GDP growth at 6.3%, while the economic growth in the third and fourth quarters is expected to be 4.6% each, with risks broadly balanced.
However, Das said, against the challenging global environment, economic activity in India remains stable. "While real GDP growth in Q1:2022-23 turned out to be lower than our expectations, the late recovery in kharif sowing, the comfortable reservoir levels, improvement in capacity utilisation, buoyant bank credit expansion and government’s continued thrust on capital expenditure are expected to support aggregate demand and output in H2:2022-23," he adds.
The first quarter of the fiscal year had seen the country's GDP growing at 13.5%. In the first quarter of the next fiscal year (2023-24), the RBI expects the GDP to grow at 7.2%.
During the previous MPC meeting on August 5, 2022, the RBI kept the projections for FY23 GDP growth 'unchanged' at 7.2%, while saying that the Indian economy is expected to be the fastest growing economy in FY23. But, macroeconomic challenges like the tightening of policy rates across global economies and supply chain shocks due to the Russia-Ukraine war have forced the RBI to cut its FY23 GDP growth forecast. Before the war broke out in February, the RBI had projected the GDP to grow at 7.8% for FY23.
The RBI's GDP growth estimates are on the lines of predictions made by key global institutions. The Asian Development Bank (ADB), in a supplement to its flagship Asian Development Outlook (ADO) report last week, cut India's GDP growth forecast for 2022-23 to 7% from 7.5% estimated earlier.
S&P Global Ratings this week retained India’s GDP growth projection at 7.3% for the financial year 2022-23 even as it sees downside risks. Earlier this month, global ratings agency Fitch Ratings also slashed the GDP growth forecast for the country to 7% in FY23 from 7.8% predicted earlier. It expected the Indian economy to grow at 6.7% during FY 2023-24, lower than its earlier projection of 7.4%.
Meanwhile, the RBI’s MPC today also decided to hike the key policy rate for the fourth time in a row by 50 basis points to 5.9%. It said the RBI will remain focused on the “withdrawal” of the "accommodative" policy stance to control inflation but vowed to keep on supporting the economy against challenges like high inflation, rupee depreciation, unemployment, and supply chain issues. On inflation, the RBI has maintained its FY23 forecast at 6.7%.