Inflation expected to average 5.4% in FY23, says CRISIL's DK Joshi

Q1: I would start by asking about your GDP projection for FY23. Your projection is 7.8%, which is slightly lower than what the government projected through the Economic Survey which is 8.5%, and at par with what the RBI projected which is 7.8%. So, what is the rationale behind this growth projection of yours?  
Ans:
>India’s growth projection of 7.8% was retained because Omicron wave proved to be mild, despite the geopolitical tensions
>Positivity has returned to the contact-based services
>Russia-Ukraine crisis has led to significant uncertainties
>Crude oil price will be in the range of $85-90 a barrel in FY23

Q2: Now, the RBI’s projection for CPI inflation, for the next fiscal is 4.5%. But that again was before the recent geopolitical flare-up. Do you think that projection holds anymore? And what is your projection, given the current situation.  
Ans:
>RBI’s forecast of 4.5% inflation was made before the Russia-Ukraine crisis
>RBI should recalculate inflation forecast based on the changes in crude oil, commodities and geopolitical situations
>Raised inflation outlook to 5.4% for fiscal 2022-23
>In a comfortable position with food grains
>Rising prices of imported edible oil will put pressure on inflation
>Burden of global crude oil price rise will be shared between households, the government and oil marketing companies
 
Q3: To what extent do you think current commodity prices in this situation will impact government’s Budget targets?
Ans:
>With inflation going up, nominal GDP is going to be higher than what it was assumed earlier
>Nominal GDP doing well is good for tax collection
>It will be a challenge to shrink the subsidy bill by the proposed 26%  
>Govt has two options: Cut the capex or raise the fiscal deficit from its current level
>Govt may not raise the fiscal deficit, so the expenditure will get reshuffled again 
 
Q4: If you could also touch upon the rupee situation – how will that impact our trade, import export. 
Ans:
>Don’t expect too much depreciation of rupee
>Rupee’s going to be around 76.5 for 1 USD, by March 2022-end
>Forecasting a mild depreciation next year, with Rupee around 77.5 for 1 USD
>Rupee’s going to be volatile between 76.5 and 77.5
 
Q5: Do you think capex could be hit and the government would have to spend more on subsidies and other welfare measures?
Ans:
>If pressure continues, capex is bound to be hit
>Budget’s cushion, based on conservative estimates, is gone now
 

Watch video