Growth Likely To Toe Estimates But Crude Surge A Worry, Says February Economic Review
While the geopolitical impact is yet to be seen, the February economic review remains in high spirits about economic growth.
India said growth will be in line with estimates as the recovery from pandemic continues and the real impact of global geopolitical tensions can only be gauged in March when more data comes out.
But the increase in price of crude oil, if sustained, will negatively impact the growth estimates. Elevated energy and commodity prices will "act as an upside risk to the inflation outlook in the near-medium term", according to the document released by the Department of Economic Affairs.
The government is watching food, energy and metals prices, the review said. Forex reserves and merchandise exports are expected to absorb any shocks in capital outflow stemming from uncertain geopolitical issues.
Too Early To Tell Impact Of Ukraine Invasion
India's real GDP grew 5.4% year-on-year in the third quarter ended December and 6.4% sequentially.
This "reaffirms the completion of the recovery" as GDP numbers are closer to output levels before the pandemic in 2019-20, according to the review. The real GDP in the fourth quarter is also estimated to be ahead of corresponding output, proving the muted impact of the Omicron wave, it said.
The geopolitical tension in old Soviet grounds has increased the price of India's imports, international prices of crude oil and other commodities.
The impact in real terms remains yet to be seen and would reflect only in the activity level of March when high-frequency data becomes available, the review said.
Economic Activity, Agri Sector Positive
Economic activity remains upbeat with upswing in mobility, resilient power demand, healthy toll collection and E-way bill generation, according to the economic review. The GST of more than Rs 1.3 lakh crore in February adds to this estimation.
Rural economy is expected to witness a boost with a good rabi sowing season and the production of major crops like rice, wheat, gram, maize and oilseeds is also projected at record levels, it said.
However, the review said, fertiliser availability remains a cautionary item with the ongoing geopolitical tensions as India is highly dependent on Russia and Belarus for imports in the category.
WPI Inflation Will Moderate
"Measures taken by government like imposition of stockholding limits on edible oils, open market sale and rationalisation of tariff and cess have aided stability in prices of essential commodities," the document said.
The RBI has projected CPI inflation at 4.5% for FY23.
Meanwhile, WPI saw an uptick to 12.7% in the April-February period of FY22, driven by a low-base effect and is expected to moderate in the coming months.
The review hopes the budget's capex focus will help the economy grow amid global political turmoil and higher volatility in financial markets.