The Reserve Bank on Wednesday lowered the country's GDP growth forecast to 6.8 per cent for the current fiscal from 7 per cent earlier, on account of continued geo-political tensions and tightening of global financial conditions. The six-member monetary policy committee (MPC) headed by the RBI Governor also raised the key lending rate or the repo rate by 35 basis points to 6.25 per cent. This is the fifth consecutive rate hike after a 40 basis points increase in May and 50 basis points hike each in June, August and September. In all, the RBI has raised the benchmark rate by 2.25 per cent since May this year.
India, however, remains a bright spot in the otherwise gloomy world and will be among the fastest growing major economies, said RBI Governor Shaktikanta Das while announcing the latest bi-monthly monetary policy.
"The biggest risks to the outlook continue to be the headwinds emanating from protracted geo-political tensions, global slowdown and tightening of global financial conditions," he said. Taking all these factors into consideration, the RBI projected the real GDP growth for 2022-23 at 6.8 per cent, with the third quarter at 4.4 per cent and the fourth at 4.2 per cent.
Gross Domestic Product (GDP) growth is projected at 7.1 per cent for April-June period of 2023-24 and at 5.9 per cent for the following quarter. "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 Governor said.
It is to be noted that it is for the third time this fiscal that the central bank has pared the growth projections for 2022-23. In April, the central bank had cut the GDP growth estimate from 7.8 per cent to 7.2 per cent, and further lowered it to 7 per cent in September.
As per the official government data, the GDP growth in the second quarter of the fiscal slowed to 6.3 per cent from 13.5 per cent in the preceding three months.
For the Indian economy, Das said the outlook is supported by good progress of rabi sowing, sustained urban demand, improving rural demand, a pick-up in manufacturing, rebound in services and robust credit expansion.
Consumer price inflation moderated to 6.8 per cent (y-o-y) in October as expected, but it still remains above the upper tolerance band of the target. Core inflation is exhibiting stickiness.
"While headline inflation may ease through the rest of the year and Q1:2023-24, it is expected to rule above the target," he said.
The medium-term inflation outlook is exposed to heightened uncertainties from geopolitical tensions, financial market volatility and the rising incidence of weather-related disruptions.
In an interconnected world, "we cannot remain entirely decoupled from adverse spillovers from the global slowdown and its negative impact on our net exports and overall economic activity" the Governor said as the central bank raised the key policy rate for the fifth time in a row.