UBS revises India's GDP growth forecast upwards by 70 basis points to 6.2%

Citing a better-than-estimated global growth outlook, lower global crude oil prices and robust services exports, UBS has revised upwards its India growth forecast by 70 basis points to 6.2 per cent for the current fiscal.

House economists at Swiss brokerage UBS have already revised global growth projections upwards by nearly 50 basis points to 2.6 per cent in 2023, led by China's early reopening, resilience in European data and revision in the US growth numbers.

The domestic economy has clipped at 7.2 per cent in FY23, 20 basis points higher than what was forecast earlier.

UBS Securities India chief economist Tanvee Gupta Jain said that the growth was driven by the much higher than expected Q4 growth at 6.1 per cent. The consensus expectation is 6 per cent growth in FY24 while the Reserve Bank pegs it at 6.5 per cent.

"There are upside risks to the country's growth forecast on the better-than-estimated global growth outlook, lower global oil prices and robust services exports. This has us revising our FY24 real GDP growth forecast higher by 70 basis points to 6.2 per cent", said Jain.

On the crude front, she expects it to average at $75 a barrel in FY24 if the country imports 25 per cent of its oil needs from Russia, much lower than the earlier estimate of $90 a barrel.

A 10 per cent decline in average crude oil prices would push real GDP growth higher by 20 basis points if the fuel costs are passed on to consumers. However, the impact would be non-linear in case of a subsequent fall in oil prices. 

Another key enabler is the robust trend in services surplus, which could support net exports (of goods and services) contribution to overall growth even as global growth headwinds remain.

Jain also sees inflation averaging at 5.1 per cent even as weather-related risks remain. Her earlier forecast was to average 5.3 per cent in FY24.

"This moderation is partly on account of the slowing domestic demand, the pass-through of correction in global commodity prices, including fuel price cuts in FY24, lags from monetary policy to inflation and improvements in global supply chains and lastly base effect", added Jain. 

On the monetary front, she maintains the base case expectation of a shallow easing cycle of a 50 basis points cut to commence from the second half of the financial year. But she does not think the RBI is likely to cut rates before the Federal Reserve considering the interest rate differential between the repo rate and the effective Federal Reserve fund rate (142 basis points currently) being the lowest since June 2006.