InvestorQ : Why has UBS downgraded India’s GDP growth?
Rashi Mehra made post

Why has UBS downgraded India’s GDP growth?

Archita Jajjoo answered.
11 months ago

UBS has lowered India’s GDP growth forecast for FY23, which is hardly surprising considering that even the RBI has already downgraded its estimates quite sharply for India GDP for FY23. UBS has downsized its GDP growth forecast for India for fiscal year FY23 by 70 basis points from 7.7% to 7.0%. UBS has specifically pointed to the risks that the RBI may not be able to maintain inflation targets for the year. Russia war could have a deep impact.

UBS also feels that going ahead, the passthrough of higher commodity prices would be a lot more seamless. UBS has especially pointed to the pressure created by weak rural demand in India. This is likely to enhance the pricing pressure and demand constriction for most products ranging from oil to fuel to food items. According to UBS, Inflation at 6.95% in Mar-22 month is an indication that a lot of purchasing power damage is already underway.

The other big risk is aggressive tightening by the RBI. UBS expects that RBI would follow the Fed if the latter holds its aggression beyond May. RBI may end up raising rates by as much as 100 bps in the current calendar year itself. According to UBS, that would constrain domestic consumption, spending power and income levels. It could also amplify the global problems India is already facing and push growth to lower levels in India.