Highlights

• The growth forecast: Crisil retains its fiscal 2023 real gross domestic product (GDP) growth forecast for India at 7.3%, with downside risks
  
• Why are risks tilted to the downside? Higher oil prices, slowing global demand for India’s exports, and higher inflation are acting as the major drag factors. Inflation reduces purchasing power and would weigh on revival of consumption — the largest component of GDP which has been backsliding for a while. However, a normal monsoon forecast and rebound in contact-intensive services are expected to bring some succour
• Inflation at 6.8%: We foresee the consumer price index (CPI)-based, or retail inflation rising to 6.8% on average this fiscal, compared with 5.5% last year. The impact of this year’s heatwave on domestic food production, coupled with persisting high international commodity prices and input costs, will cause a broad-based rise
• Current account deficit at 3%: Elevated commodity prices, slowing global growth, and supply chain snarls do not augur well for India’s current account balance. We expect the current account deficit (CAD) to widen to 3% of GDP this fiscal, up from 1.2% in fiscal 2022
• Rupee at 78/$: The rupee-dollar exchange rate will remain volatile with a depreciation bias in the near term due to a widening trade deficit, foreign portfolio investment (FPI) outflows and strengthening of the US dollar index (owing to rate hikes by the US Federal Reserve, or Fed, and safe-haven demand for the dollar amid geopolitical risks). We expect the exchange rate to settle at 78/$ by March 2023, compared with 76.2/$ in March 2022