As the ongoing Russia-Ukraine war dampens global growth forecasts, Crisil believes the Indian economy is more resilient now than it was during the 2008 global financial crisis and that the services sector will drive growth this fiscal.

“This fiscal, we see services driving growth, compared with the exports- and manufacturing-driven growth of the past two fiscals. This will help MSMEs [micro, small and medium-sized enterprises] bounce back, with demand for their services improving,” Amish Mehta, Managing Director and CEO, Crisil told BusinessLine.

Highlighting that inflation ‘remains the elephant in the room’, Mehta expressed hope that it will be tamed in the near term.

Official data has indicated that the Indian economy grew at 8.7 per cent in 2020-21, which is marginally lower than the 8.9 per cent projected by the second advance estimate in February 2022.

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Crisil has maintained its real GDP growth projection for the current fiscal 2023 at 7.3 per cent, with risks tilted to the downside.

In an interview with BusinessLine, Mehta noted that as growth slows, so could capex, which, in turn, could be a drag on credit offtake

“...corporates have good ability to borrow. Even banks are in a very good place today in terms of provisioning, balance sheets, liquidity, non-performing assets, and capital. This shows they can lend to good credit,” he said, adding that the Indian economy is much more resilient than it was during the 2008-09 crisis.

Large and medium companies are better prepared, given the deleveraging cycle, he said, noting that Crisil’s credit ratio of 5.04 times for the second half of fiscal 2022 underscores this.

With Covid-19 infection rates subsiding, the situation is expected to improve, Mehta further said.

“But now, global economies are suddenly decelerating because of the geopolitical strife. Even as that happens, crude oil and natural gas prices have flared up, inflation is raging in commodities and metals, and there is uncertainty on food prices as well,” he said.

Inflation

Crisil’s forecast of consumer inflation is 6.3 per cent. The first half of this fiscal is likely to witness retail inflation at about 7 per cent  and the second half a little lower.

“We have not seen this level of Wholesale Price Index inflation in India in the past two decades. We are above the Consumer Price Index inflation band set by the RBI,” he said, adding that further rate hikes are inevitable.

“To be sure, the government and the RBI have taken steps to cool inflation. You had the rate hike in May, another is expected in June, and then more as we go further into this fiscal,” he said, noting that the government has recently brought down excise duty rates on crude oil products, which would help ease inflation.

 If crude remains above $100, India’s balance of payments, current account deficit, and foreign exchange rates would come under pressure.

“But our ability to respond to crises — as a country, as banks, as lending institutions, and as corporates — is way better now than it was before,” he said, while cautioning that uncertainties such as future waves and variants of Covid-19, and geopolitical tensions remain clear and present risks.

The monsoon season will be critical for the rural sector, which has to factor in the rise in prices of food, pesticides and seeds, as well as diesel used for farming activities, he pointed out.

All this will put pressure on the fiscal deficit. The government will have to think of borrowing, and subsidising, more.

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