NEW DELHI: India's Gross domestic product (GDP) acceleration is on course to print close to 7% this year in 2022-23, foreign brokerage, JP Morgan said in a report.
Despite being strong, it would nevertheless result in output that is around 7% below its pre-pandemic potential trend, reflecting the pandemic's effects as well as the bad terms of trade shock caused by rising commodity prices in 2022.
According to JP Morgan, growth is predicted to slow in 2023–2024 as a result of the strong global downturn that is impacting exports and the gradual normalisation of domestic fiscal and monetary policies.
Despite this, bank and corporate balance sheets seem to be in considerably better shape than they have in recent years. Banks are much more likely to lend now that the corporate debt/GDP ratio is at its lowest level since 2006. But with the increased level of global uncertainty, slower GDP, tightening monetary conditions, and manufacturing utilisation rates that are still below 80%, the research stated, a broader private investment cycle will take time to fructify.
As exports have slowed and imports are still quite sticky, the Current Account Deficit (CAD) is on course to exceed 3% of GDP this year; reducing the CAD back to sustainable levels will need to be a key policy goal in 2023.
The Center is expected to achieve the budgeted fiscal deficit of 6.4% of GDP this year and targets a consolidation of 0.5% of GDP the following year; the fiscal balancing act will involve reducing the deficit while maintaining strong capex. In turn, continued fiscal consolidation off still-elevated levels is key to CAD compression.
As GDP slows and input price pressure eases, inflation is predicted to stay sticky in the upcoming months before progressively declining in 2023–2024.
We anticipate the MPC is approaching a pause, with the chance of a final 25 bps raise at the February review, the research said. This is because the RBI will be tightening liquidity and rising rates by around 300 bps in 2022.
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