CRISIL Reiterates 7.8% GDP Growth Next Fiscal

CRISIL HAS reiterated its December 2021 forecast of India's gross domestic product (GDP) growth at 7.8% in fiscal 2023.

"Any potential upside due to the early end of a mild third wave of Covid-19 infections will be offset by the ongoing geopolitical strife stemming from Russia's invasion of Ukraine, which is creating a dampening effect on global growth and pushing up oil and commodity prices. The risks to growth are also tilted to the downside," the ratings agency has said.

Speaking at CRISIL's flagship event, 'India Outlook, Fiscal 2023', Amish Mehta, Managing Director & CEO, CRISIL Ltd, said, "Spiking commodity prices, especially of crude oil, will have a bearing on India's macros, including the current account deficit and inflation. These would create headwinds to growth. The good part is, the health of the financial sector is on the mend, with better capitalisation, profitability and asset quality. That, and enhanced public spending on infrastructure, private investments driven by the Production-Linked Incentive scheme, and a chunk of green capex should deliver some good-quality tailwinds."

Says Dharmakirti Joshi, Chief Economist, CRISIL, "We believe the fiscal policy will need to be deployed more aggressively than envisaged in the Union Budget for next fiscal. This can be done by increasing allocation for employment-generating schemes and food subsidy, and cutting duty on petroleum products. This can be a relief bridge for those most affected by the pandemic till such time the virtuous cycle of investment-led growth plays out in the labour market, and private consumption demand becomes self-sustaining."

Higher price of crude oil will widen India's current account deficit to 2.2% in fiscal 2023. Typically, a $10 increase in the price of crude oil increases the current account deficit to GDP ratio by about 40 basis points.

The near-term impact of high oil prices on inflation, assuming a significant passthrough, will be more pronounced than on growth. However, all bets are off if oil stays around or above $100/barrel for a prolonged period.

Says Suresh Krishnamurthy, Senior Director, CRISIL Market Intelligence & Analytics, "Amid all this, better credit profiles of large companies spur hope of a kickstart in the private sector investment cycle - even as commodity prices, especially crude oil and natural gas, and their attendant volatility remain the key risks to recovery prospects. To be sure, the net debt to Ebitda ratio for the top 700 players is at decadal low of 2.3 times in fiscal 21 and may remain at similar levels in fiscal 22 compared with a peak of 3 times in fiscal 2016."

Further, while utilisation levels in legacy sectors do not support a rounded capex recovery, spends under schemes such as Production Linked Incentive (PLI) may result in industrial capex rising to above Rs 4-4.5 lakh crore on average in the medium term (through fiscal 2026) compared with Rs 3-3.5 lakh crore in the three years through fiscal 2020.

India's investment focus is now shifting towards green capital expenditure, with an expected spend of over Rs 2.85 lakh crore per annum over fiscals 2023 to 2030, accounting for nearly 15-20% of total investments - into the infrastructure and industrial sectors - per annum. This will further help push a supply-driven recovery for the economy as a whole.