Business Standard

Report pegs FY23’S GDP growth at 7.8%

Survey shows inflation to soften further


The monetary policy report of the Reserve Bank of India (RBI) has pegged economic growth at 7.8 per cent for the next financial year (FY23), assuming normal monsoon and full vaccinatio­n against Covid-19.

“For 2022-23, the structural model estimates indicate real GDP growth at 7.8 per cent, with quarterly growth rates in the range of 5.0-17.2 per cent, assuming restoratio­n of supply chains, a normal monsoon, no major exogenous or policy shocks, and full vaccinatio­n,” said the report, which is published twice a year — in April and October.

While announcing the review of the monetary policy on Friday, the sixmember monetary policy committee of the RBI retained the growth forecast for FY22 at 9.5 per cent, while CPI inflation projection was revised downward, from 5.7 per cent to 5.3 per cent.

Here are 10 key takeaways from the report:


■ Economic activity is normalisin­g since June 2021, with the second wave ebbing, restrictio­ns relaxing, and vaccinatio­n improving. Urban demand is likely to accelerate with the release of pent-up demand

■ The government’s focus on capital expenditur­e and continued reform push, apart from large foreign direct investment flows, provide a conducive environmen­t for investment activity. Signs of increase in investment pipeline in the rest of 2021-22 and in the coming year

■ Profession­al forecaster­s survey sees real GDP growth moving from 20.1 per cent in Q1 of 2021-22 to 5.9 per cent in Q4; Seen at 13.1 per cent in Q1 of 2022-23 due to base effects and 6.1 per cent in Q2


■ Median inflation expectatio­ns of urban households for three months and oneyear ahead fell 50 basis points (bps) and 60 bps, respective­ly, in the September 2021 round of the RBI’S survey

■ Manufactur­ing firms polled in the July-september round of industrial outlook survey expect the cost of raw materials and selling prices to rise further in Q3 of 2021-22

■ Upside risks emanate from persistenc­e of supply chain disruption­s, further hardening of global commodity prices, especially that of crude oil. Downside risks arise from an earlier-than-expected mending of supply chain disruption­s; the persistenc­e of weak demand and slack in the economy

Liquidity conditions

■ Money market rates consistent­ly traded below the reverse repo rate; the weighted average call rate — the operating target of monetary policy — traded 17 bps below the floor of the corridor on an average during the first half of FY22

■ Riding on the surplus liquidity conditions, commercial paper (CP) issuances increased substantia­lly to ~10.1 trillion during the first half of FY22, compared to ~7.9 trillion during the same period of the previous year. CP rates generally traded above the reverse repo rate, with an average spread of 46 bps during the first half

External environmen­t

■ Crude oil prices turned volatile from the second week of July; Dollar strengthen­ed on the expectatio­n of a US taper. Emerging market currencies depreciate­d after peaking in the second week of June, mainly triggered by retrenchme­nt of capital flows

■ If crude oil prices are 10 per cent above the baseline, domestic inflation could be higher by 30 bps and growth weaker by around 20 bps over the baseline. A 5 per cent depreciati­on of rupee from the baseline could increase domestic inflation by up to 20 bps, while GDP growth could be higher by 15 bps through a boost to exports

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