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Growth forecast: RBI cuts GDP growth rate

Meanwhile, the RBI has forecast Q3 growth at 4.4 per cent and Q4 at 4.2 per cent.

rbi, rbi monetary policy, rbi india gdp forecastA man walks behind the Reserve Bank of India (RBI) logo inside its headquarters in Mumbai, India. (REUTERS/File Photo)
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The Monetary Policy Committee of the Reserve Bank of India slashed its gross domestic product (GDP) growth estimate to 6.8 per cent for the fiscal from 7 per cent earlier. This comes a day after the World Bank raised its growth forecast to 6.9 per cent for financial year 2022-23 from a revised 6.5 per cent accounted in October.

While unveiling the monetary policy on Wednesday, the RBI said, “growth prospects across the world are dampening. Financial markets remain nervous and are characterised by high volatility and price swings.” Capital flows to emerging market economies (EMEs) remain volatile and global spillovers pose risks to growth prospects, the central bank said while raising the Repo rate by 35 basis points to 6.25 per cent.

Spillover from global slowdown

According to the RBI, in an interconnected world, India cannot remain entirely decoupled from adverse spillovers from the global slowdown and its negative impact on our net exports and overall economic activity. “The biggest risks to the outlook continue to be the headwinds emanating from protracted geopolitical tensions, global slowdown and tightening of global financial conditions,” the RBI policy panel said.

The World Bank’s upward revision to its FY23 GDP forecast Tuesday came two months after it had cut India’s FY23 GDP forecast to 6.5 per cent from 7.5 per cent in an October update, which came in the wake of a series of growth downgrades by rating agencies, investment banks and other multilateral institutions. On Tuesday, the WB raised the growth projection citing the economy’s relative resilience to external headwinds and “a strong out-turn” in the second quarter of the current financial year.

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Meanwhile, the RBI has forecast Q3 growth at 4.4 per cent and Q4 at 4.2 per cent. “The risks are evenly balanced. Real GDP growth is projected at 7.1 per cent for Q1:2023-24 and at 5.9 per cent for Q2. Even after this revision in our growth projection for 2022- 23, India will still be among the fastest growing major economies in the world,” the RBI panel said.

Rating agencies Fitch and Moody’s have forecast a 7 per cent growth in the economy in FY2023.

“The external sector has been affected by strong global headwinds. Slowing global demand is weighing on our merchandise exports. The growth of merchandise imports is also decelerating,” the central bank said.

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“In meeting the challenges thrust upon us by a hostile global environment, we should not lose sight of the task of improving the long-term potential of our country,” RBI Governor Shaktikanta Das said. Green transition, reconfiguration of supply chains and logistics, production-linked incentive schemes, digital banking and financial services, and innovative technologies offer immense opportunities for the Indian economy, Das said.

First published on: 07-12-2022 at 12:20 IST
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