India’s GDP forecast for 2023 was cut by 50 basis points to 7.9 per cent by Morgan Stanley. This comes as higher oil prices begin to negatively affect the ongoing economic recovery.
While the cyclical recovery trend will continue but the experts expect it to be softer than previously projected.
The slash in India’s GDP figures comes amid the ongoing geopolitical tensions; it also comes with external risks and a stagflationary impulse to the economy.
Since India is affected through three key channels — higher oil prices and other commodities; trade, and tighter financial conditions, these influence business/investment sentiments as well.
Reasons behind slashing India’s GDP figures
“Building in higher oil prices, we trim our F23 GDP growth forecast 50bps, to 7.9 per cent, lift our CPI inflation forecast to 6 per cent, and expect the current account deficit to widen to 10-year high of 3 per cent of GDP,” it said.
Notably, India is 85 per cent dependent on imports to meet its oil demands. So, the recent rise in international oil prices will result in India paying more for the commodity.
The higher oil prices will also result in inflationary pressure. Morgan Stanley also noted that macro stability indicators are likely to worsen.
Focusing more on improving the productivity dynamic will help mitigating the risks.
“We see less room for fiscal policy stimulus to support growth given high deficit and debt levels – we see a possibility of a modest fuel tax cut and reliance on the national rural employment program as an automatic stabilizer,” Morgan Stanley added.
The report witnesses upside risks of 0.5 per cent of India’s GDP to the fiscal deficit target of 6.4 per cent of GDP for FY23 (April 2022 to March 2023).
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