New Delhi, March 10 (FN Bureau) Noting that any potential upside due to the early end of third wave of Covid infections will be offset by the ongoing Russia-Ukraine crisis, research and rating firm CRISIL on Thursday said that Indian economy would grow by 7.8 per cent in FY23 with risks tilted to the downside. CRISIL said that the ongoing geopolitical strife is creating a dampening effect on global growth and pushing up oil and commodity prices. “Spiking commodity prices, especially of crude oil, will have a bearing on India’s macros, including the current account deficit and inflation. These would create headwinds to growth. The good part is, the health of the financial sector is on the mend, with better capitalisation, profitability and asset quality,” said Amish Mehta, Managing Director & CEO, CRISIL.
“That, and enhanced public spending on infrastructure, private investments driven by the Production Linked Incentive scheme, and a chunk of green capex should deliver some good-quality tailwinds,” he further said. The rating agency has projected that average Consumer Price Index (CPI)-based inflation will stay firm at 5.4 per cent next fiscal if the price of crude oil averages $85-90/barrel. Private consumption is projected to face headwinds from high inflation. CRISIL Chief Economist Dharmakirti Joshi suggested that fiscal policy will need to be deployed more aggressively than envisaged in the Union Budget for next fiscal. This can be done by increasing allocation for employment-generating schemes and food subsidy, and cutting duty on petroleum products.
This can be a relief bridge for those most affected by the pandemic till such time the virtuous cycle of investment-led growth plays out in the labour market, and private consumption demand becomes self-sustaining,” he said. Higher price of crude oil is expected to widen India’s current account deficit to 2.2 per cent in fiscal 2023, as per CRISIL estimate. Typically, a $10 increase in the price of crude oil increases the current account deficit to GDP ratio by about 40 basis points. “The near-term impact of high oil prices on inflation, assuming a significant pass through, will be more pronounced than on growth. However, all bets are off if oil stays around or above $100/barrel for a prolonged period,” CRISIL said.