A global economic slowdown and its impact on exports from India could lead to a reassessment of growth for this financial year (FY23) by Reserve Bank of India (RBI).
A three-day meeting of the central bank’s monetary policy committee is scheduled for December 5-7. Besides its rate move, the meeting will be closely watched for RBI’s growth projection, which currently stands at 7% for 2022-23.
“The implications of the impact on the export sector will have to be factored in. Though the latest numbers are in line with RBI’s forecast, there could be a possibility of the central bank reducing its forecast by about 20 basis points,” said Saugata Bhattacharya, chief economist, Axis Bank.
One basis point is a hundredth of a percentage point.
Figures released on Wednesday showed that India’s gross domestic product (GDP) growth for the July-September quarter slowed to 6.3% from 8.4% a year earlier, and 13.5% in the previous quarter, owing to slower growth of the manufacturing and mining sectors.
Though the GDP growth in the second quarter of this fiscal was in line with RBI’s projection in its monetary policy review in October, expectations are that growth will face some headwinds from here on.
Nomura economists Sonal Varma and Aurodeep Nandi said in a report on Thursday that they believe India’s growth rate cycle has peaked and a broad-based slowdown is underway. “While lower inflation should help support private consumption in coming months, the lagged effects of tighter financial conditions and weak global demand will weigh on both investment and exports, while the post-pandemic catchup in services is largely complete. Therefore, we expect GDP growth momentum to slow down more sharply in coming quarters,” said the report.
Economic growth is expected to slow down to 4.7% in 2023 from 6.8% in the current year, said the report. The slowdown in global growth is likely to intensify in the first half of 2023 and will play an outsized role in driving a domestic slowdown in the coming quarters, it said.
“Not only are exports likely to underwhelm, but investments are also vulnerable given that the capex cycle has historically been in sync with the global cycle. In addition, tightening domestic financial conditions and weak consumption fundamentals will also likely weigh on growth,” said the Nomura report.
UBS economists Tanvee Gupta Jain and Nihal Kumar said in a report that India’s real GDP growth is likely to soften in the coming quarters owing to slowing global growth and delayed impact of monetary tightening on domestic demand.
They projected India’s GDP growth at 6.9% in this fiscal and at 5.5% in 2023-24.
“We anticipate a normalisation in consumption growth sequentially as Covid reopening tailwinds fade and households’ purchasing power is impacted by tight monetary policy, the depletion of accumulated pandemic savings, and an incomplete labour market recovery,” said the UBS report.
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