The effect of rising crude oil prices in the world is now visible on India. Due to the Russia-Ukraine war, there has been a rapid increase in the price of commodities in the country. At the same time, the increase in the price of petrol-diesel is also believed to be fixed. Veteran investment banker Morgan Stanley has slashed India’s growth forecast by 50 basis points to 7.9 per cent in the wake of the changing global situation. Along with this, the inflation forecast for the financial year 2022-23 has been increased to 6 percent.
Current account deficit may remain at 10-year highs: Morgan Stanley has said in its report that due to geopolitical tensions, crude oil prices may remain elevated and India’s current account deficit will increase during this period due to expensive import bills. He further said that if the price of crude oil increases by 10 percent, then the current account deficit will increase by 30 to 35 basis points relative to India’s GDP. For this reason, it is estimated that India’s current account deficit may reach 10 years in FY23.
Morgan Stanley has predicted that in April, the Reserve Bank of India may normalize its monetary policy stance by shifting it from accommodative. Along with this, the risk of a large increase in the reverse repo rate has also increased.
The report further said that “we see little room for fiscal policy stimulus to support growth given the high deficit and debt levels and with it the prospect of a modest fuel tax cut.”
Citibank also reduced the estimate: Citibank has cut India’s growth forecast for the fiscal year 2022-23 from 8 per cent to 7.5 per cent due to rising crude oil prices. The bank has further said that if crude oil prices remain at the highest level, then the growth rate in the financial year 2022-23 may come down to 7 per cent. On the other hand, there is an increase of 70 basis points or 0.70 per cent in inflation estimates during this period.