RBI's Monetary Policy: FY23 GDP growth forecast lowered to 7.2 percent from 7.8 percent

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) estimated that the GDP growth rate for Financial Year 2022-23 would be at 7.2%.

RBI Governor Shaktikanta Das said FY23 GDP growth forecast lowered to 7.2% from 7.8%.

The projection of GDP growth for 2022-23 is seen at 16.2% in Q1 (Apr-Jun 2022), 6.2% in Q2 (Jul-Sept 2022), 4.1% in Q3 (Oct-Dec 2022), and 4% in Q4 (Jan-Mar 2023).

FY23 GDP projection has assumed crude oil prices at $100 per barrel, the RBI Governor said.

"Real GDP Growth for the year 2022-23 is now projected at 7.2% with Q1 2022-23 at 16.2%, Q2 at 6.2%, Q3 at 4.1% and Q4 at 4%, assuming crude oil that is Indian basket at USD 100 per barrel during the year 2022- 23, said RBI Governor Shaktikanta Das after the MPC review meeting.

The RBI Governor noted that inflation and growth projections are fraught with risk given the volatility in the international markets.

"It may be noted that given the excessive volatility in global crude oil prices since late February and extreme uncertainty over evolving geopolitical tensions, projection of growth & inflation is fraught with risk and largely contingent upon future oil and commodity price developments," RBI Governor said at the MPC briefing.

RBI Monetary Policy LIVE Updates

The RBI Governor's statement released to the press states that growing geopolitical tensions have lowered GDP growth projections.

On the growth outlook, the statement mentions, "As the horizon was brightening up, escalating geopolitical tensions have cast a shadow on our economic outlook. Although India’s direct trade exposure to countries at the epicentre of the conflict is limited, the war could potentially impede the economic recovery through elevated commodity prices and global spillover channels. Further, financial market volatility induced by monetary policy normalisation in advanced economies, renewed COVID-19 infections in some major countries with augmented supply-side disruptions and protracted shortages of critical inputs, such as semi-conductors and chips, pose downside risks to the outlook."

Also Read: CPI inflation projected at 5.7% for FY23

"According to the second advance estimates released by the National Statistical Office (NSO) on February 28, 2022, real GDP rose by 8.9 per cent in 2021-22. Private consumption and fixed investment – key drivers of domestic demand – however, remain subdued, with these two components being only 1.2 per cent and 2.6 per cent respectively, above their pre-pandemic levels. On the supply side, contact-intensive services still trail the 2019-20 level. Nevertheless, the Indian economy is steadily reviving from its pandemic induced contraction, the RBI Governor's statement reads.

Also Read: Liquidity withdrawal will be done in multi-year time frame: RBI Governor

The RBI Governor's statement also says, "Going  forward,  robust  Rabi  output  should  support  recovery  in  rural  demand, while a pick-up in contact-intensive services should help in further strengthening urban demand.  Investment  activity  may  gain  traction  with  improving  business  confidence, pick  up  in  bank  credit,  continuing  support  from  government  capex  and  congenial financial  conditions.  Capacity  utilisation  (CU)  in  the  manufacturing  sector  recovered  further  to  72.4  per  cent  in  Q3:2021-22  from  68.3  per  cent  in  the  previous  quarter, surpassing the pre-pandemic level of 69.9 per cent in Q4:2019-20."

The MPC meeting, one of the most crucial policies of recent times, happened at a time when the global picture is highly occupied with the Russia-Ukraine geopolitical tensions, high fuel prices, crude oil price hikes in the global markets, commodity prices going through the roof, and rising inflation.

Factors having a negative impact on growth trajectory of Indian economy

The ongoing war between Russia and Ukraine is posing a huge threat to global recovery. Geopolitical tensions in Russia and Ukraine have disrupted supply chains the world over. Due to high commodity and input prices, rising crude oil prices, rising inflation, and chip shortages, the overall growth rate has slowed. In addition, growth in the United States has also slowed. The increase in input prices has slowed spending and impacted consumer confidence.

MPC meets six times in a fiscal year

The six-member Monetary Policy Committee headed by the Reserve Bank of India Governor meets once every two months to review monetary policy. During the financial year, the Reserve Bank's Monetary Policy Committee (MPC) meets six times. The rate-setting panel led by the Governor of the Reserve Bank of India (RBI) met for the first time this fiscal year from April 6 to 8.

After deliberating on the current domestic and economic developments, the MPC announces its bi-monthly monetary policy. The next MPC, according to the RBI's calendar, will take place on June 6-8.