Virendra Pandit
New Delhi: Moody’s Investors Service on Thursday slashed India’s economic growth forecast for the financial year 2022-23 from 8.8 percent in May to 7.7 percent now, saying the rising interest rates, uneven monsoon, and slowing global growth may dampen economic momentum.
The Indian economy grew by 8.3 percent in FY21 and contracted by 6.7 percent in FY20, the year when the pandemic struck the country and the world.
In its update to Global Macro Outlook 2022-23, Moody’s said India’s central bank (Reserve Bank of India) may remain hawkish in 2022 and keep a reasonably tight policy stance next year to prevent domestic inflationary pressures from building further.
“Our expectation that India’s real GDP growth will slow from 8.3 percent in 2021 to 7.7 percent in 2022 and decelerate further to 5.2 percent in 2023 assumes that rising interest rates, uneven distribution of monsoons, and slowing global growth will dampen economic momentum sequentially.”
The agency said inflationary pressures would weaken in the second half (July-December) of 2022 and slide further in 2023.
An early relaxation in global commodity prices would provide a significant upside to growth. Besides, if the private-sector capital expenditure cycle gained steam, economic growth would be stronger than some projections for 2023.
Moody’s said high-frequency data for the Indian economy shows strong and broad-based underlying momentum in the first four months of the fiscal year 2022-23 (April-July).
According to official GDP estimates, the country’s economy grew 13.5 percent in Q1FY23 (April-June 2022-23), higher than the 4.10 percent growth clocked in the previous March quarter.
Moody’s said services and manufacturing sectors witnessed robust upswings in economic activity, according to hard and survey data, such as PMI, capacity utilization, mobility, tax filing and collection, business earnings, and credit indicators.
But inflation remains a challenge, with the RBI trying to balance growth and inflation while also limiting the impact of imported inflation from the year-to-date depreciation of the Indian rupee against the US dollar of around 7 percent.
India’s economic growth before the COVID-19 pandemic outbreak had materially slowed because of the impact of corporate-sector deleveraging on business investment.
“With the deleveraging complete, corporate-sector investment is showing early signs of a pickup, which could provide support to a continued business cycle expansion through several quarters, supported by investment-friendly government policies and the rapid digitization of the economy.
Regarding inflation, Moody’s said that while it eased slightly to 6.7 percent in July, it remains above the RBI’s target range of 2-6 percent for the seventh straight month.
The RBI forecasts inflation to remain high into 2023 and has hiked rates three times this year to 5.4 percent to tame inflation.