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NEW DELHI – Morgan Stanley has reduced its forecast for India’s GDP growth the current financial year and the next, citing a slowdown in global growth, higher commodity prices, and potential risk aversion in global capital markets as key growth risks.

“Against this backdrop, we lower our forecasts of India’s GDP growth to 7.6% for FY2023 (from 7.9%) and 6.7% for F2024 (from 7%),” the firm said in a research note.

“The key channels of impact will likely be higher inflation, weaker consumer demand, tighter financial conditions, the adverse impact on business sentiment, and a delay in capex recovery. On the other hand, a positive resolution of geopolitical tensions and decline in global commodity prices would improve the domestic and external demand outlook.”

Morgan Stanley’s global economics team expects global growth to average 2.9 per cent year-on-year in 2022, sharply lower from 6.2 per cent in 2021.

Consumer Price Index inflation, which is the Reserve bank of India’s monetary policy anchor, has been above the central bank’s targets for the past couple of months, with the March print clocking in at 6.95 per cent.

The RBI is mandated to keep the price gauge in the band of 2-6 per cent and its medium-term target for the same is 4 per cent.

According to Morgan Stanley, when one builds in the impact of adverse terms of trade, both inflation and the current account deficit are likely to deteriorate, with broad-based price pressures seen keeping CPI inflation above 6 per cent through October 2022.

The firm expects average CPI at 6.5 per cent for the current financial year. Reflecting the pressure of hardening global commodity prices, Morgan Stanley expects India’s current account deficit to widen to a 10-year high of 3.3 per cent of GDP in the current fiscal year.

Reacting to the substantial increase in inflation risks, RBI Governor Shaktikanta Das announced a hike in the repo rate by 40 basis points to 4.40 per cent in a surprise move last week.

“We expect front-loaded rate hikes and pencil in hikes of 50 bps each in the June and August meetings, to be followed by back-to-back rate hikes to take the policy rate to 6% by December 2022,” Morgan Stanley said.

The global firm expects the terminal repo rate at 6.5 per cent from 4.4 per cent at present.


Despite the hurdles on the horizon, Morgan Stanley expressed some optimism about India’s growth prospects in 2022 and 2023.

Key factors that would aid the growth story are the government’s supply-side response and the ‘reopening vibrancy’, the firm said.

“We expect reopening vibrancy to help the informal sector, in turn supporting consumption growth, which has been a laggard. The government’s policy reforms, plus expansion of public infrastructure spending alongside an increase in capacity utilization levels, should help private capex to recover in 6-9 months.”


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