SBI economists raise GDP growth forecast to 7.5% for FY23

“This still translates into a real GDP growth at 7.5% for FY23,” SBI economists said in a report.

"Given the high inflation and the subsequent upcoming rate hikes, we believe that real GDP will incrementally increase by Rs 11.1 trillion in FY23.
"Given the high inflation and the subsequent upcoming rate hikes, we believe that real GDP will incrementally increase by Rs 11.1 trillion in FY23.

The Indian economy may grow by 7.5% in the current financial year, 20 basis points more than an earlier estimate, SBI economists said on Thursday. India’s economy grew by 8.7% to Rs 147 trillion in FY22 with incremental addition of Rs 11.8 trillion in real terms during the year.

“Given the high inflation and the subsequent upcoming rate hikes, we believe that real GDP will incrementally increase by Rs 11.1 trillion in FY23.

“This still translates into a real GDP growth at 7.5% for FY23,” SBI economists said in a report.

Nominal GDP for FY22 expanded by Rs 38.6 trillion to Rs 237 trillion, a year-on-year growth of whopping 19.5%.

“For FY23 also, as inflation remains elevated in first half, our projection is that nominal GDP will grow by 16.1% to Rs 275 trillion,” they said.

The economists said at $120/bbl, crude oil still poses significant uncertainties regarding inflation trajectory. “We, however, now believe that inflation will average 6.5-6.7% in FY23 on the back of excise rate cuts by the government,” they said.

“We expect RBI also to be supportive of growth and hike repo rates gradually, but mostly frontload it in June and August policy.”
Specifically, core liquidity in the banking system has declined from Rs 8.3 trillion in the beginning of the year to Rs 6.8 trillion.

Net liquidity adjustment facility (LAF) absorption has declined from Rs 7.5 trillion to Rs 3.3 trillion during the same period.
“We now expect a 50 basis point repo rate hike and 25 basis point CRR hike in forthcoming June policy.

“RBI is likely to raise the repo rate cumulatively by 125-150 basis points over the pandemic level at 4%.

“RBI might also increase the CRR rate cumulatively by another 50 bps, after raising it by 50 bps in the last monetary policy,” the economists said.

In FY22, around 2,000 corporates, in listed space, reported 29% growth in top line and 52% growth in profit after tax (PAT) as compared to previous year.

Both construction and steel sector reported growth of 45% and 53%, respectively in revenue in FY22 as compared to FY21.

Interestingly, order book position remains strong, with construction major L&T reporting 9% growth in order book position at Rs 3.6 trillion as on March 2022, supported by 10% growth in order inflow of Rs 1.9 trillion in FY22 as compared to Rs 1.7 trillion in FY21, the economists said.

The sector-wise data for April indicate that credit off-take has happened in almost all sectors.

Customers, especially in retail verticals could be having a feel of future run expected in interest rates, and might be front loading their purchases in days to come, giving a fillip to consumer demands in select niche areas, they added.

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