Crisil has retained its GDP growth forecast at 7.3 per cent for the current fiscal with downside risks and expects retail inflation to rise to a nine-year high of 6.8 per cent on an average in the backdrop of the Russia-Ukraine war.

“Higher oil prices, slowing global demand for India’s exports and higher inflation are acting as the major drag factors,” said the ratings agency on Friday, attributing these as the reasons for downside risks.

Reduced purchasing power

“Inflation reduces purchasing power and would weigh on revival of consumption — the largest component of GDP which has been backsliding for a while,” it noted, adding that private consumption remains the weak link.

The only bright spots are the uptick in contact-intensive services and forecast of a normal and well-distributed monsoon, the agency said.

Crisil had, in May this year, revised its FY23 growth forecast to 7.3 per cent from its previous estimate of 7.8 per cent. The agency has forecast consumer price index based inflation at 6.8 per cent on average this fiscal, from 5.5 per cent in the previous fiscal. “Domestic climate-related shocks affecting food supply, even as the Russia-Ukraine war continues to put pressure on commodities worldwide, has led to a deteriorating outlook,” it said.

In line with RBI forecasts

This is in line with the Reserve Bank of India’s (RBI) growth and inflation forecasts. The RBI had, in June this year, retained its real GDP growth projection for 2022-23 at 7.2 per cent and estimated inflation at 6.7 per cent. Crisil also expects RBI to hike rates by another 75 basis points (bps) in the remainder of this fiscal year.

“The RBI is expected to aggressively tighten monetary policy in the next few months, to tackle surging inflation and the tight global financial conditions,” it said. These hikes are expected to be front loaded in first half of the fiscal, given that inflationary pressures remain high at present, it further said. The RBI has hiked the repo rate by 90 bps till now.

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