GDP growth projected at 7.8% next fiscal, with risks tilted to the downside
Hinges on infrastructure-led capex by government and stirring of private capital expenditure (capex)
Private consumption remains the weak link owing to reduced direct fiscal policy support
Upside to inflation likely to crimp monetary policy space
Inflation based on the Consumer Price Index (CPI) is expected to average 5.4% next fiscal
Repo rate to rise 50-75 basis points (bps) next fiscal
Benchmark 10-year government security (G-sec) yield seen rising to 7.1% by March 2023 – with an upside bias – given the turning monetary policy cycle, high crude oil prices, and large borrowings by the government
Risks multiplying, though India is on firmer ground
Risks are shifting fast from Covid-19 to geopolitics, crude oil, and interest rate hikes in the US
Our macroeconomic outlook is predicated on an average Brent crude price of $85-90 per barrel (bbl) in fiscal 2023. If it stays higher, it will create risks to our growth, inflation and current account calls
Surprises in the US Federal Reserve’s (Fed) rate-hike schedule could create volatility in the forex markets
Also, Covid-19 infection rates are down, but the pandemic has not been officially eradicated. So, the possibility of disruption of economic activity due to further waves of infections cannot be ruled out
India is better prepared than in 2013 to face external shocks due to its forex shield, but it is clearly not insulated
