Swiss brokerage UBS Securities has revised upwards its growth forecast for the current fiscal to 9.5 per cent from 8.9 per cent in September, Citing faster-than-expected recovery, rising consumer confidence and the resultant spending spike.
They also see the economy clipping at 7.7 per cent in FY23 but moderating to 6 per cent in FY24, as it expects the benefit of the low-interest rate regime to end by the end of FY23, and it sees the central bank hiking policy rates by 50 bps in the second half of the next fiscal.
The brokerage bases the more-than-consensus growth optimism on the consumption growth, different measures to boost public Capex and signs of recovery in the residential real estate sector. Their suggests that economic activity has improved by an average of 16.8 per cent in the September quarter after contracting 11 per cent in the June quarter.
It is also expected that the exports could also moderate from next year at a very high rate this year due to a shift from goods to service consumption at the global level as the pandemic recedes.
On inflation, they expect the CPI to decelerate to 4.8 per cent in FY23 from 5.4 per cent in FY22, assuming the RBI gradually starts unwinding its ultra-easy policy as the economic recovery gains momentum. And on the fiscal front, they expect the government to remain committed to fiscal consolidation and narrow the deficit to 8.8 per cent in FY23 from 10.1 per cent in FY22.
The Reserve Bank also forecasts 9.5 per cent GDP growth this fiscal while the average projection ranges from 8.5 to 10 per cent. The government projection is around 10 per cent.
The economy is bouncing back on progressive reopening, and the recovery from the second wave has been more pronounced than what we anticipated, Tanvee Gupta Jain, the chief economist at UBS Securities India said on Wednesday. In fact, The GDP grew 20.1 per cent in the June quarter of FY22.
However, a mutant virus that is resistant to vaccines still remains the biggest downside risk. It may force the government to impose new restrictions. This might lead to a spike in inflation. If both materialise, then FY23 growth will be much lower at 5 per cent as per their analysis.
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