RBI retains FY23 GDP forecast at 7.2%; cautions against negative global spillovers

Mumbai: The Reserve Bank on Wednesday retained its GDP growth forecast at 7.2 for the current fiscal but cautioned against negative spillovers of geopolitical tensions and a slowdown in the global economy.

Announcing the third monetary policy of 2022-23, RBI Governor Shaktikanta Das said the available information for April and May 2022 indicates that the recovery in domestic economic activity remains firm, with growth impulses getting increasingly broad-based. 

Manufacturing and services purchasing managers' indices (PMIs) for May point towards further expansion of activity. 

This is also corroborated by the movements in railway freight and port traffic, domestic air traffic, GST collections, steel consumption, cement production and bank credit. While urban demand is recovering, rural demand is gradually improving, Das said.

"Looking ahead, real GDP is expected to broadly evolve on the lines of the April 2022 MPC resolution. The forecast of normal south-west monsoon should boost kharif sowing and agricultural output. 

"This will support rural consumption. The rebound in contact-intensive services is expected to sustain urban consumption," he said.

Nevertheless, Das noted that the negative spillovers from geopolitical tensions; elevated international commodity prices; rising input costs; tightening of global financial conditions; and a slowdown in the world economy continue to weigh on the outlook. 

"Taking all these factors into consideration, the real GDP growth for 2022-23 is retained at 7.2 per cent, with Q1 at 16.2 per cent; Q2 at 6.2 per cent; Q3 at 4.1 per cent; and Q4 at 4.0 per cent, with risks broadly balanced," the governor said.

The central bank earlier in April slashed the GDP growth projection for 2022-23 to 7.2 per cent from its earlier forecast of 7.8 per cent.

On Tuesday, the World Bank cut India's economic growth forecast for the current fiscal to 7.5 per cent as rising inflation, supply chain disruptions, and geopolitical tensions taper recovery.

It was the second time that the World Bank has revised its GDP growth forecast for India in the current fiscal 2022-23 (April 2022 to March 2023). In April, it trimmed the forecast from 8.7 per cent to 8 per cent and now it is projected at 7.5 per cent.

India's economy grew by 4.1 per cent in the January-March quarter of 2021-22. 

The governor further said experience teaches that preserving price stability is the best guarantee to ensure lasting growth and prosperity. 

"Our actions today will impart further credibility to our medium-term inflation target, which is the central tenet of a flexible inflation targeting framework," Das added. 

He further said India's recovery is proceeding apace, offering the RBI space for an orderly policy shift. 

Das stressed that amid the current difficult and challenging times, the Indian economy has remained resilient, supported by strong macroeconomic fundamentals and buffers. The recovery has gained momentum despite the pandemic and the war. 

He also assured that similar to the RBI's resolute and timely actions to limit the economic damage emanating from the COVID-19 pandemic, the central bank will continue to be proactive and decisive in mitigating the fallout of the ongoing geopolitical crisis on the Indian economy.