RBI's policy rate likely to reach 5.65% by end of fiscal, GDP to grow 7%: FICCI survey

Industry body FICCI on Thursday said India's economy is estimated to grow 7 per cent in the current fiscal, lower than the earlier projection of 7.4 per cent, mainly due to the ongoing geopolitical uncertainties.

FICCI's Economic Outlook Survey (July 2022) also said the policy rate of the Reserve Bank of India is expected to reach 5.65 per cent by the end of this fiscal.

Currently, the policy rate (repo) is 4.9 per cent.

The present round of survey was conducted in June that covered leading economists representing industry, banking and financial services sector.

The survey has projected an annual median GDP growth for 2022-23 at 7 per cent, with a minimum and maximum growth estimate of 6.5 per cent and 7.3 per cent, respectively.

"Growth forecast has been downgraded from the 7.4 per cent estimate in previous survey round (April 2022) owing to geopolitical uncertainty and its repercussions for the Indian economy," FICCI said.

The median growth forecast for agriculture and allied activities has been pegged at 3 per cent for 2022-23 while industry and services sectors are anticipated to grow 6.2 per cent and 7.8 per cent, respectively.

"Indian economy is not immune to global volatility, as is evident from the deepening inflationary pressures and increasing uncertainty in financial markets. The participants pointed out that these factors are exerting pressure on India's economic prospects and is likely to delay the recovery," it said.

As per the survey, major risks to India's economic recovery include rising commodity prices, supply-side disruptions, bleak global growth prospects with the conflict prolonging in Europe.

Economists who participated in the survey opined that the global economy's prognosis in 2023 will be determined by the inflation trajectory, the extent of interest rate hikes required to maintain price stability, and the impact of higher rates on household consumption and investment demand.

Moreover, with downside risks to growth building up, and substantial uncertainty regarding the US Federal Reserve's ability to anchor inflation levels, the occurrence of a recession in the medium-term cannot be totally overruled.

"The economists cited that the central bank is expected to maintain a hawkish stance throughout the calendar year 2022.

"Policy repo rate is forecast at 5.65 per cent by the end of the fiscal year 2022-23, with a minimum and maximum range of 5.50 per cent and 6.25 per cent respectively," the survey said.

The survey has pegged the median forecast for CPI-based retail inflation rate at 6.7 per cent for 2022-23, with a minimum and maximum range of 5.4 per cent and 7 per cent, respectively.

This is in line with the RBI's indicative trajectory put forth in the recent monetary policy announcement in June 2022, FICCI said.

Inflation levels are expected to slow down starting September 2022 and fall back into the 4 per cent range only by June 2023, it added.

"With upside risks to inflation remaining on fore, the government should work out a comprehensive roadmap which may require action at multiple levels," as per the survey.