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RBI Policy | FY23 GDP growth forecast retained at 7.2%, recovery seen gathering strength

RBI policy: Rising capacity utilisation levels in the manufacturing sector are expected to lead to greater investment activity in the coming months

June 08, 2022 / 11:59 AM IST
(Representative image)

(Representative image)

The Reserve Bank of India (RBI) has retained its GDP growth forecast for FY23 at 7.2 percent, with the Monetary Policy Committee saying the recovery in domestic economic activity is "gathering strength".

"Rural consumption should benefit from the likely normal south-west monsoon and the expected improvement in agricultural prospects. A rebound in contact-intensive services is likely to bolster urban consumption, going forward," the committee said in its statement on June 8 while announcing a 50-basis-point hike in the repo rate.

Also read: RBI raises repo rate by 50bps to 4.9% to fight inflation pressure

However, spillovers from "prolonged geopolitical tensions, elevated commodity prices, continued supply bottlenecks and tightening global financial conditions nevertheless weigh on the outlook", the rate-setting panel said.

Like the full-year number, the quarerly GDP growth forecasts were also unchanged from April—16.2 percent for April-June, 6.2 percent for July-September, 4.1 percent for October-December, and 4.0 percent for January-March 2023.


Also read: Bond market shows faith and fortitude after RBI hikes repo rate by 50 bps

Risks to the growth forecasts are "broadly balanced". The growth forecasts have been retained even as the central bank hiked the repo rate by 90 basis points within in the space of five weeks, with headline retail inflation now seen exceeding 6 percent for more than four quarters, which would mean the MPC will fail to meet its mandate.

In his statement, Governor Shaktikanta Das said data for April and May suggested India's economic recovery "remains firm, with growth impulses getting increasingly broad based".

Also read: MPC meeting: Key highlights from RBI Governor Shaktikanta Das' speech

The central bank's latest surveys show capacity utilisation of the manufacturing sector increased to 74.5 percent in the first quarter of 2022 from 72.4 percent the previous quarter.

With capacity utilisation seen increasing further in FY23, Das said investment activity is expected to strengthen, aided by the government's focus on capital expenditure and the deleveraged balance sheets of companies.

Also read: RBI on way to catching up with reality, globally rate hikes will be an overhang on asset prices: Devina Mehra

"Improvement in investment activity is also reflected in pick-up in demand for bank credit and persisting growth in imports of capital goods," Das added.

The MPC raised its inflation forecast for FY23 by 100 basis points to 6.7 percent, with the quarterly projections predicting it will fail short of its mandate to keep CPI inflation within the 2-6 percent tolerance band.

Siddharth Upasani
first published: Jun 8, 2022 11:59 am
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