The Reserve Bank of India (RBI) has retained the GDP forecast at 7.2%, as estimated in the previous MPC meeting, owing to high inflationary pressures and global supply chain disruptions.
The quarter-wise growth projection stood at 16.2% for Q1, 6.2% for Q2, 4.1% for Q3 and 4% for Q4.
RBI Governor Shaktikanta Das stated that an increase in contact-intensive services is expected to lead the urban consumption. The rural demand is likely to improve gradually with an improvement in the agricultural sector and the likelihood of a normal southwest monsoon season.
A double-digit growth was witnessed in Merchandise exports for the fifteenth consecutive month in May, meanwhile non-oil non-gold imports also grew at a healthy pace, pointing to recovery of domestic demand.
Improving capacity utilisation and the government's capex push is likely to support Investment activity.
Projected growth number can be attributed to hardening of commodity prices, supply-chain disruptions led by the Russia-Ukraine war and resurfacing Covid-19 fears in the country. The pressures have hampered the recovery process to pre-pandemic levels.
Adding on to these worries are the concerns of constantly rising food and fuel prices affecting the private consumption segment which is one of the key drivers of the Indian economy.
The RBI projection comes a few days after the GDP growth for Q4 of FY22 took a hit due to the Omicron-led third Covid-19 wave and high inflationary pressures.
The World Bank had recently revised its economic growth estimate for the second time to 7.5% from 8% for FY23.
Global rating agencies like Moody's Investors Service, S&P Global Ratings, Fitch, and Asian Development Bank (ADB) have brought down their GDP projections considering factors like early heat waves in March, import-export bans and shortage of raw materials.
The International Monetary Fund (IMF) had lowered its economic predictions for India, stating that it expects the country's growth rate to be approximately 8.2% instead of the previously predicted 9%. Following the suit, the Asian Development Bank (ADB) had also predicted the growth to fall to 7.5%.
Lowering their expectations by a few percentage points due to high crude oil prices, the RBI in April had cut the forecast to 7.2% from 7.8%.
However, the government has been trying to enhance the economic activity of the country by proposing to increase capital expenditure by 35.4% to Rs 7.5 lakh crore or 2.9% of the GDP .
Finance minister Nirmala Sitharaman also said that the economic growth will be supported by investment in public funds along with a push for business investment, imparting momentum to the economy based on the concept of growth at both a macro and micro level which complements each other.
Governor Das, in an exclusive interview with Economic Times, had said that RBI’s actions will be “tailored accordingly” depending on the state of the economy. RBI has been focusing on removal of accommodative stance gradually to curtail growing inflation while bringing back the growth to pre-Covid levels.
In an unscheduled meeting in May, the RBI had hiked the repo rate by 40 basis points to 4.40% prompted by an eight-year high retail inflation of 7.79% and wholesale price-based inflation to a record high of 15.08% in April.
Source Name:-Economic Times