INSUBCONTINENT EXCLUSIVE:
Morgan Stanley cuts India's FY23 GDP forecast, flags stagflation riskMumbai: American brokerage firm Morgan Stanley sharply cut its India
FY23 real Gross Domestic Product (GDP) growth estimate to 7.9 per cent on Thursday, mainly due to the impact of the Russia-Ukraine conflict
on oil prices.Analysts at the brokerage also raised their inflation forecast to 6 per cent - the upper end of the tolerance band for the RBI
- and flagged stagflation risks because of the ongoing events."We believe that the ongoing geopolitical tensions exacerbate external risks
and impart a stagflationary impulse to the economy," they said.It can be noted that stagflation involves a stagnancy in output or growth,
coupled with high inflation.The analysts said they expect the cyclical recovery trend to continue, but the same will be in a softer
mode.They also specified that India is impacted by the geopolitical tensions, including the hardening of oil and other commodities prices, a
possible dip in trade, and tighter financial conditions because of the dent to sentiments.Many watchers have been worried about the possible
impact on GDP growth due to Russia's war against Ukraine
Interestingly, the downward revision in the estimate by the brokerage comes on a day when leading domestic credit rating agency Crisil stuck
to its 7.8 per cent expansion for FY23.The American brokerage firm expects the current account deficit to widen to a ten-year high of 3 per
cent due to the ongoing crisis, which has pushed oil prices to over $140 per barrel."The key channel of impact for the economy will be
households, business, and government," it said.Macro-stability indicators are expected to "worsen" in India, but lack of domestic imbalances
and focus on improving the productivity dynamic will help to mitigate risks, it said, adding there is no need for either the government or
the RBI to tighten disruptively as a result of the crisis at hand.However, the analysts advanced their expectation of a rate hike by the RBI
to the April policy review from June earlier, which will also kick off the post-pandemic policy normalisation process."If the RBI were to
delay its normalisation process, the risk of disruptive policy rate hikes would rise
cut and reliance on the national rural employment programme as an automatic stabiliser," it said.There is also a risk of fiscal slippage of
