Mumbai, June 3: SBI Research forecasts the Indian economy to grow at 7.5 percent in 2022–23, a 20 basis point increase from its previous estimate. According to the report, the economy grew by 8.7 percent in FY22, net adding Rs 11.8 lakh crore in the year to Rs 147 lakh crore, but this was only 1.5 percent 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 Rs 11.1 lakh crore in FY23. This still translates into a real GDP growth of 7.5 percent for FY23, up by 20 basis points over our previous forecast, “SBI chief economist Soumya Kanti Ghosh said in a note on Thursday. Nominal GDP increased by Rs 38.6 lakh crore, or 19.5 percent on an annualised basis, to Rs 237 lakh crore.He predicted that nominal GDP would grow 16.1 percent to Rs 275 lakh crore in FY23, as inflation remains high in the first half.The report bases its optimism on rising corporate revenue and profit, as well as expanding bank credit and ample liquidity in the system. Concerning rising corporate growth, the report notes that in FY22, approximately 2,000 publicly traded companies reported 29 percent top-line growth and a 52 percent increase in net profit over the previous year. The construction sectors, including cement, steel, and others, reported impressive growth in both revenues as well as net income, with a 45 percent and 53 percent rise, respectively, in revenue. Interestingly, the order book position remains strong, with L & T reporting a 9% increase in order book position at Rs 3.6 lakh crore as of March, supported by a 10% increase in order inflow of Rs 1.9 lakh crore in FY22 and Rs 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 a 14.7 percent demand spike in April and contributing around 90 percent 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. On the liquidity front, the report expects the central bank to be supportive of growth by only gradually hiking repo rates, but mostly frontloading it in June and August with a 50 basis point repo hike and a 25 basis point CRR (cash reserve ratio) hike in the forthcoming June policy. Core systemwide liquidity declined from Rs 8.3 lakh crore at the beginning of the year to Rs 6.8 lakh crore now, while net LAF (liquidity adjustment facility) absorption declined from Rs 7.5 lakh crore to Rs 3.3 lakh crore.
The RBI is expected to raise the repo rate by 125-150 basis points above the pandemic level of 4%. 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 the absorption of Rs 1.74 lakh crore from the market on a durable basis (Rs 87,000 crore absorbed earlier). High government borrowing has ruled out the possibility of an OMO sale, so a CRR increase seems like the possible non-disruptive option for absorbing the durable liquidity. Furthermore, this opens up space for the central bank to conduct liquidity management in the future through OMO purchases. With this, the monetary authority can give back to the market at least three-fourths of the Rs 1.74 lakh crore absorbed through the CRR hike or Rs 1.30 lakh crore in some form to address duration supply. This will lower the market borrowing to around Rs. 13 lakh crore. Given the higher crude prices, trading over USD 120 a barrel, the report sees inflation averaging at 6.5-6.7 percent in FY23.