SBI Revises Up FY23 Economic Growth Forecast to 7.5%

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According to reports, SBI Research has projected the Indian economy to grow at 7.5% in 2022-23, an upward revision of 20 basis points from its earlier estimate.

As per official data, the economy grew by 8.7% in FY22, net adding ₹11.8 lakh crore in the year to ₹147 lakh crore, the report said, adding this was however only 1.5% higher than the pre-pandemic year of FY20.

“Given the high inflation and the subsequent upcoming rate hikes, we believe that real GDP will incrementally increase by ₹11.1 lakh crore in FY23. This still translates into a real GDP growth of 7.5% for FY23, up by 20 basis points over our previous forecast,” SBI chief economist Soumyakanti Ghosh said in a note on Thursday, the report said.

Nominal GDP expanded by ₹38.6 lakh crore to ₹237 lakh crore, or 19.5% annualised. In FY23 also, as inflation remains elevated in the first half, nominal GDP will grow 16.1% to ₹275 lakh crore, he said.

The report basis its optimism on the rising corporate revenue and profit and the growing bank credit coupled with ample liquidity in the system.

On rising corporate growth, the report notes that in FY22, around 2,000 listed companies reported 29% top line growth and 52% jump in net profit over the previous year.

Construction sectors including cement, steel, etc reported impressive growth in both revenue as well as net income with 45% and 53%, rise respectively in revenue, the report said.

Interestingly, the order book position remains strong, with construction major L&T reporting 9% growth in order book position at ₹3.6 lakh crore as of March, supported by 10% growth in order inflow of ₹1.9 lakh crore in FY22 and ₹1.7 lakh crore in FY21.

Similarly, the sector-wise data for April indicates that credit offtake has happened in almost all sectors led by personal loans registering 14.7% demand spike in April and contributing around 90% of the incremental credit in the month, primarily driven by housing, auto and other personal loans as customers, expecting interest rate hikes, have been front-loading their purchases, the report said.

On the liquidity front, the report expects the central bank to be supportive of growth by only gradually hiking repo rates, but mostly frontload it in June and August with a 50 basis points repo hike and 25 basis points CRR (cash reserve ratio) hike in the forthcoming June policy.

Core systemwide liquidity declined from ₹8.3 lakh crore in the beginning of the year to ₹6.8 lakh crore now while net LAF (liquidity adjustment facility) absorption declined from ₹7.5 lakh crore to ₹3.3 lakh crore.

The RBI is likely to raise the repo rate cumulatively by 125-150 basis points over the pandemic level of 4%, the report said.

The central bank may also increase the CRR cumulatively by another 50 basis points , after raising it by 50 basis points in the last monetary policy which will lead to absorption of ₹1.74 lakh crore from the market on durable basis (₹87,000 crore absorbed earlier).

High government borrowing has ruled out the possibility of OMO sale, thus CRR increase seems as the possible non-disruptive option of absorbing the durable liquidity. Furthermore, this opens up space for the central bank to conduct liquidity management in future through OMO purchases, the report said.

With this, the monetary authority can give back to the market at least three-fourths of ₹1.74 lakh crore absorbed through CRR hike or ₹1.30 lakh crore in some form to address duration supply. This will lower the market borrowing to around ₹13 lakh crore.

Given the higher crude prices, trading over $120 a barrel, the report sees inflation averaging at 6.5-6.7% in FY23. (Source: The Hindu)