Moody’s cuts India’s GDP growth projection for 2022 to 7%
NEW DELHI: Moody’s on Friday slashed India’s gross domestic product (GDP) growth projection to 7% for 2022, saying that global slowdown and high domestic interest rates would dampen economic momentum.
This is the second time in as many months that Moody’s Investors Service has cut India’s growth estimates for 2022. In September, it had cut projection for the year from 8.8% pegged in May to 7.7%.
“For India, the 2022 real GDP growth projections have been lowered to 7% from 7.7%. The downward revision assumes higher inflation, high interest rates and slowing global growth will dampen economic momentum by more than we had previously expected,” said the Global Macro Outlook 2023-24.
Moody’s expects growth to decelerate to 4.8% in 2023 and then to rise to 6.4% in 2024. The Indian economy grew 8.5% in 2021 calender year, according to Moody’s. As per official GDP estimates, the economy expanded 13.5% in Apriljune 2022-23, higher than 4.10% growth clocked in Januarymarch. GDP figures for September quarter would be released at the end of this month.
Moody’s said the weakening of the rupee and high oil prices continue to exert upward pressures on inflation, which has remained above the Reserve Bank of India’s (RBI) tolerance level of 6% for much of this year.
Retail inflation increased to 7.41% in September, while wholesale inflation remained in double digit for the 18th straight month at 10.7%.
The RBI has hiked interest rates by 190 basis points between May and September to 5.90% to contain inflation.
Moody’s expects the RBI to raise the repo rate by about another 50 basis points to tame inflation and support the exchange rate.
Eventually, the RBI will likely shift from inflation management to growth considerations, provided that the rate increase has the desired effect of taming inflation, it said.
Moody’s joins a host of agencies which have slashed India’s economic growth projections for current fiscal year (Aprilmarch) citing slowdown in global economy, Russiaukraine war, rising interest rates and inflation.
While the World Bank has revised down its growth estimate for India by 100 basis points to 6.5%, IMF has trimmed it to 6.8% from 7.4%.
S&P Global Ratings revised down its growth forecast to 7.3% for current fiscal year from 8.7%.
Moody’s said the underlying growth dynamics are fundamentally strong, boosted by a rebound in services activity. Government capital expenditure and manufacturing capacity utilization have also improved. September exports are down from the peak in March, but they are still around 30% above the pre-pandemic level. Non-food credit growth shows solid momentum, it said.
The private sector is now well-positioned to increase capex spending. Also, the Production Linked Incentive Scheme to attract investment in 14 key manufacturing sectors is showing results, the rating agency noted.
“While these domestic strengths will continue to support the domestic growth narrative, global financial tightening and slowing external demand will pose downward pressure on growth in 2023,” Moody’s said.
Several mitigating factors will support growth in large emerging market economies, it said. Domestic pent-up demand will continue to support reopening momentum. Services activity has rebounded in several countries, including India. “With demand in the group of 7 developed nations weakening, large domestically driven emerging economies such as India and Brazil will likely be less vulnerable to slowing trade growth than will export-oriented countries,” it said.