India may clock 7.4% GDP growth in FY23; RBI likely to hike rates by 50-75 bps: FICCI survey

Representative image

India's annual median GDP growth forecast stood at 7.4 percent for 2022-23, according to a survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) released on April 3.  The Economic Outlook Survey estimates a minimum and maximum growth of 6.0 percent and 7.8 percent, respectively.

According to the industry chamber's survey, the median growth forecast for agriculture and allied activities has been put at 3.3 percent for 2022-23. The industry and services sectors are expected to grow 5.9 percent and 8.5 percent, respectively, during the fiscal year.

Citing the Russia-Ukraine conflict and existing COVID-19 pandemic, the trade body economists also noted that downside risks to growth may remain escalated and pose a significant challenge to global recovery.

ALSO READ: India’s GDP growth may be fastest in Asia-Pacific in FY23: S&P Global

On Price Rise:

The current crisis may aggravate price rise through imported commodities and estimated average wholesale price index-based inflation in Q4 of 2021-22 at 12.6 percent, according to the survey that was drawn after responses from leading economists representing industry, banking and financial services sectors.

The FICCI's Economic Survey projected CPI based inflation at 6.0 percent in Q4 2021-22 and 5.5 percent in Q1 2022-23. It also said that the median forecast of 5.3 percent for 2022-23 for CPI-based inflation may fluctuate between a range of 5.0 percent and 5.7 percent, respectively.

Meanwhile, the survey expects some respite in CPI-based inflation in the forthcoming fiscal year, which has been treading above the targeted range of the RBI in January-February 2022.

On Commodity Price hike:

Taking note from the Russia-Ukraine conflict, the survey economists said, "Prolonging of this conflict will further hit supplies of major raw materials, including crude oil, natural gas, food, fertilizers, and metals." However, they viewed that global inflation is likely to peak out in the first half of 2022 and moderate thereafter.

ALSO READ: ICRA cuts India's FY23 GDP growth estimate sharply to 7.2% on Ukraine conflict impact

On the impact of inflation in India, the economists said that "surging crude oil prices are likely to adversely impact India’s macros," adding, "Increase in oil-prices coupled with the sharp fall in Rupee value is inflating India’s import bill adding to the stress on current account."

The economists while presenting their overall view on the Russia-Ukraine crisis and its impact on economy, said the cost escalation may hit the cash flow going ahead and is weighing heavy on producers' capex plans. They also suggested that private demand and investment should be the focus in 2022-23 to steer growth.

The survey economists, however, mentioned that despite the challenges, Indian economy remains well placed over the medium term. But, they suggested that the Union government's fiscal policy should be on front foot and inflation pressures could be contained via excise cuts or subsidies. "This will be important to safeguard private consumption expenditure as inflation pressures gain strength," they said.

On RBI Monetary Policy:

The FICCI's Economic Survey opined, "while it is difficult to assess the exact impact of the conflict on global economy, much would depend on further continuation of the conflict and the ensuing policy responses. The sanctions imposed on Russia by European countries and the United States is having spill overs in both the real and the financial sectors."

Adding that the overall situation remains volatile, the economists said, "Global growth could slow down by 50-75 basis points – further moderating the prospects of post covid recovery."

Expressing the views on the forthcoming monetary policy to be announced on April 8, 2022, the economists said that Reserve Bank of India (RBI) will refrain from undertaking policy reversal and the committee is expected to look through temporary inflation spikes in the near term.

"RBI is expected to continue to support the ongoing economic recovery by keeping policy repo rate unchanged in April announcement," the survey said. The economists were of the view, that the RBI will look at reversing its stance in the second half of the current year (2022) and one can expect a rate hike between 50-75 bps by end of this fiscal year.

Also, citing the inflation in India as supply driven, the economists opine support from government in terms of fiscal measures such as reduction in excise duty and VAT on petrol or diesel by Centre and states' potential to mitigate some immediate concern on inflation may help.

On MSMEs:

"It is important that the cash flows of the MSMEs enterprises is in place in order to maintain the 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%," the survey said.

Apart from this, the economists suggested that there is a need to reconsider the provision of 90 days limit for classifying working cycle of MSMEs over dues into NPAs and the limit should be increased to 180 days.