The Reserve Bank of India (RBI) has lowered India's GDP growth for FY23 to 7.2% from its earlier guidance of 7.8% in the backdrop of the Russia-Ukraine war.

While keeping the repo rate unchanged at 4% for the eleventh time in a row, RBI Governor Shaktikanta Das said on Friday that the “escalating geopolitical tensions have cast a shadow on our economic outlook”. The war has let loose extreme volatility in commodity and financial markets. Despite India’s direct trade exposure to countries at the epicentre of the conflict being limited, the war “could potentially impede the economic recovery through elevated commodity prices and global spillover channels”.

Das said the real GDP growth is projected at 16.2% in the first quarter of FY23; at 6.2% in Q2; at 4.1% in Q3; and at 4% in Q4.

The revision in RBI’s estimates is based on the assumption of crude oil at $100 per barrel during 2022-23.

“The RBI derived comfort from a swift improvement in the Covid caseload, which allowed for contact intensive activities to gain traction, better confidence, and business surveys, pick up in capacity utilisation surveys and rebound in multiple high-frequency indicators. Geopolitics had, however, cast a shadow through confidence and commodity channels. To reflect this local-global mix, the FY23 GDP growth forecast was cut to 7.2% from 7.8% before,” said DBS Group senior economist Radhika Rao.

While revising downwards the GDP growth rate, the RBI revised upwards its retail inflation forecast to 5.7% for FY23 compared with 4.5% in the last fiscal.

Renewed Covid-19 infections in some more countries with augmented supply-side disruptions and protracted shortages of critical inputs, such as semi-conductors and chips, pose downside risks to the outlook, Das added.

  While robust rabi output should support recovery in the rural demand going forward, a pick-up in contact-intensive services should help in further strengthening urban demand.

The Indian economy grew at 5.4% in the December quarter compared to 0.7% a year ago and 8.5% in the preceding quarter.