“Since the duration of Russia-Ukraine conflict continues to be uncertain, Ind-Ra has created two scenarios with respect to the FY23 economic outlook basis certain assumptions,” the ratings agency said.
In Scenario 1, the crude oil price is assumed to be elevated for three months, and in Scenario 2, the assumption is for six months, both with a half cost pass-through into the domestic economy.
India Ratings said it expects GDP to grow 7.2% on-year in Scenario 1 and 7% in Scenario 2 in FY23, compared to its earlier forecast of 7.6%.
“However, the size of the Indian economy in FY23 will still be 10.6% and 10.8% lower than the FY23 GDP trend value in Scenario 1 and Scenario 2, respectively,” it said.
Consumer sentiment is likely to witness a further dent due to Russia’s invasion of Ukraine leading to rising commodity prices and consumer inflation.
Consumption demand as measured by private final consumption expenditure (PFCE) is expected to grow 8.1% and 8% in Scenario 1 and 2, respectively, in FY23, as against its earlier projection of 9.4%.
India Ratings expects the surge in commodity prices and disruptions in global supply chain caused by the Russia-Ukraine conflict to take a toll on their sentiments and cautioned that there is a likelihood that this capex may get deferred till more clarity emerges with respect to the conflict.
It also said that a 10% year-on-year increase in petroleum product prices without factoring in currency depreciation is expected to push up retail inflation by 42 basis points and wholesale inflation by 104 basis points.
The ratings agency analysed that a $5 per barrel increase in crude oil prices will translate into a $6.6 billion increase in current account deficit.
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