Motilal Oswal Financial Services recently projected real gross domestic product (GDP) growth of 8.7 per cent in fiscal 2021-22, down from 11.1 per cent it had forecast earlier. It, however, revised up the forecast for fiscal 2022-23 from 4 per cent to 5.4 per cent. It also expects the Reserve bank of India (RBI) to shift from its accommodative stance to neutral by the year-end.
The recent surge in industrial metals and agricultural commodities is likely to have a much larger impact on the wholesale price index (WPI) over the consumer price index (CPI), it said. Although the GDP deflator is still more closely linked with WPI, RBI’s policy instrument is CPI.Motilal Oswal Financial Services has projected real GDP growth of 8.7 per cent in fiscal 2021-22, down from 11.1 per cent it had forecast earlier. It, however, revised up the forecast for fiscal 2022-23 from 4 per cent to 5.4 per cent. It also expects the Reserve bank of India (RBI) to shift from its accommodative stance to neutral by the year-end.#
"Thus while higher WPI-based inflation will drive nominal GDP growth higher, it will not present any additional concerns regarding the monetary policy," the company said in its Economic Outlook for the second quarter of this fiscal.
CPI inflation is expected to ease to 5.7 per cent in FY22 from 6.2 per cent in FY21. Average inflation of 6 per cent in two years reduces the possibility to ease any further.
At the same time, the company said, the government may not only marginally over-achieve its FY22 fiscal deficit target but also meet its spending target.
There are three notable trends in FY22 so far. First, RBI has announced higher dividends to the government by ₹40,000 crore. Second, an additional fertiliser subsidy of ₹14,008 crore has been announced. And third, the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) valued at ₹90,00 crore has been extended to seven months up to November.
Motilal Oswal said the Indian government's fiscal deficit could remain unchanged at ₹15.1 lakh crore (or 6.6 per cent of GDP) due to a higher denominator nominal GDP in FY22.
However, total spend could also be the same at budget estimate level—implying a decline of 0.8 per cent year-on-year in FY22 due to higher-than-targeted total spending in FY21.
Fibre2Fashion News Desk (DS)
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