SBI ups FY23 GDP forecast to 7.5%; from oil prices to credit growth, here are factors that will shape growth

The State Bank of India (SBI) Research has raised the forecast for India’s GDP growth by 20 basis points to 7.5 per cent, it said in a report, on the back of continued credit growth and better statistical base. SBI said even though the growth numbers look better they pose “significant uncertainties” from global factors such as rising crude oil prices. 

“We are keenly watching the uncertainties regarding the crude oil prices. At $120/bbl, it still poses significant uncertainties regarding inflation trajectory,” SBI Ecowrap said in a report Thursday. Going ahead, inflation is expected to remain elevated in the first of the current year, however, with the fiscal measures announced by the government such as excise rate cuts, it is expected to average 6.5 to 6.7 per cent in FY 2023, it added.

In the report, SBI also lists factors such as corporate profitability, bank credit growth and RBI policy, that will shape GDP growth for FY 2023:

Construction, steel sectors:

According to SBI Research, corporate profitability grew in FY 2022, with 2000 listed companies reporting 29 per cent growth in revenue and 52 per cent growth in profit after tax. Of these companies, companies in the construction and steel sector recorded “impressive numbers,” the report said, adding that the former’s revenues grew 45 per cent while the latter’s revenues rose 53 per cent. Citing an example of construction to manufacturing conglomerate Larsen & Toubro, SBI Research said the order inflows of the construction major remains strong.

Retail credit growth:

Credit off-take has happened in all sectors, from personal loans to housing loans, SBI Research said citing April data. The growth is expected to remain strong as the central bank is expected to hike interest rates in upcoming meetings, it added. “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,” SBI Research report said.

RBI policy:

SBI said  it expects the Reserve Bank of India’s policy to have an impact on India’s growth rate. It expects the RBI to hike interest rates by 50 basis points and CRR by 25 basis points in the upcoming MPC meeting. This could help in absorbing liquidity, of Rs 1.74 lakh crore from the market on a durable basis, from the system, it added. 

“RBI can give back to the market at least 3/4th of the Rs 1.74 lakh crore absorbed through CRR hike or Rs 1.30 lakh crore in some form to address duration supply. This would lower the market borrowing to around Rs 13 lakh crore,” the report added.

Crude oil prices:

Another factor that will have an impact on the course of GDP growth is crude oil prices. SBI said it is keenly watching the uncertainties around crude oil prices, adding that even at a price of $120/bbl, it still poses “significant uncertainties” on inflation trajectory. Oil prices are expected to climb further before declining, but it might hold up at current levels for a longer period of time, the report said, citing independent forecasts.