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Citing the rising uncertainty over Russia-Ukraine war and the resultant dampening of consumer sentiment, India Ratings and Research (Ind-Ra) has lowered India’s Gross Domestic Product (GDP) growth forecast to 7-7.2 per cent for FY23, from 7.6 per cent projected earlier. It said that since the duration of the war continues to be uncertain, in the first scenario crude oil prices could remain elevated for three months, and in the second case for six months.

India Ratings chief economist Devendra Pant and principal economist Sunil Kumar Sinha said if crude prices remain high for three months, FY23 GDP could grow by 7.2 per cent; in case it lasts longer, then growth will be 7 per cent, down from 7.6 per cent projected earlier. They said the size of the economy in FY23 will be 10.6 per cent and 10.8 per cent lower than the FY23 GDP trend value in these two scenarios, respectively.

Ind-Ra expects private consumption spends to grow at 8.1 per cent and 8 per cent in scenario 1 and 2, respectively, in FY23, as against its earlier projection of 9.4 per cent. Similarly, investment demand, as measured by the gross fixed capita formation, is the second-largest component (27.1 per cent) of GDP from the demand side. Private capex by large corporates, which has been down and out over the past several years, has shown some promise lately in view of the rollout of the production-linked incentive scheme and increased manufacturing sector capacity utilisation driven by higher exports.

However, it expects the surge in commodity prices and disruptions in global supply chain caused by the Ukraine war to take a toll on sentiments and it’s likely this capex may get deferred till more clarity emerges with respect to the conflict. However, government capex is unlikely to be dented. On the inflation front, it warn that a 10 per cent rise in oil prices without factoring in currency depreciation, is expected to push up retail inflation by 42 bps and wholesale inflation by 104 bps. Similarly, a 10 per cent jump in sunflower oil without factoring in currency depreciation is expected to push retail inflation by 12.6 bps and wholesale inflation by 2.48 bps. Both these events can increase the retail and wholesale inflation by 55 bps and 109 bps, respectively.