New Delhi: As economic recovery torpedoes higher oil prices across the world, Morgan Stanley has slashed India’s GDP forecast by 50 basis points to 7.9 per cent for the fiscal year beginning April 1, The retail inflation forecast has been raised to 6 per cent and the current account deficit is expected to widen. 3 percent of GDP.
“While we expect the cyclical correction trend to continue, we expect it to be softer than before,” a report said. “We believe that ongoing geopolitical tensions exacerbate external risks and provide a stagnant impulse to the economy.”
India is affected by three major channels- high prices for oil and other commodities; Business, and tight financial conditions, affect business/investment sentiment.
“Building on higher oil prices, we lower our F23 GDP growth forecast by 50 bps, to 7.9 percent, raise our CPI inflation forecast to 6 percent, and expect the current account deficit to exceed 10 years of GDP. will increase to the highest of 3 per cent of Rs.
India is 85 per cent dependent on imports to meet its oil needs and the recent surge in international oil prices, which pushed rates to a 14-year high of $140 a barrel before retreating, has resulted in You will have to pay more for the commodity. In addition, higher prices will result in inflationary pressures.
The major channel of impact for the economy would be high cost-inflation, which would feed widespread price pressures, weighing on all economic agents – households, business and government.
On India’s exposure to macro stability risks, Morgan Stanley said that even though macro stability indicators are expected to deteriorate, reduction of domestic imbalances and a focus on improving productivity will help mitigate the risks.
“As such, we do not expect that fiscal or monetary policy will need to be disruptively tightened to manage macro stability risks. The risk will arise from a further sustained rise in oil prices, leading to macro stability and currency There will be a quick drop in volatility.” said.
The brokerage had expected a hike in the repo rate at the June meeting of RBI’s Monetary Policy Committee. “But now we expect the April policy to mark the process of policy normalization with the reverse repo rate hike.”
“However, if the RBI delays its normalization process, the risk of disruptive policy rate hikes will increase. We see less room for fiscal policy stimulus to support growth given the higher deficit and debt levels – we are a The marginal fuel tax sees the possibility of reduction and dependence in the National Rural Employment Program as an automatic stabilizer,” it said.
The report looked at exposure to 0.5 per cent of GDP for fiscal year 2013 (April 2022 to March 2023) against a fiscal deficit target of 6.4 per cent of GDP.
“We see that risks are sloping to the downside for growth and to the upside for inflation and CAD,” it said. “Again, the key risk would be a sharp and sustained increase in oil prices, raising concerns of macro stability and leading to a disruptive monetary tightening. In addition, risks could arise if global growth conditions further weaken, Which will spoil India’s export and capex cycle.”
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