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Business News/ Economy / India to grow at 8.4% in FY23: Moody’s
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India to grow at 8.4% in FY23: Moody’s

High oil prices and supply distortions will remain a ‘drag on growth’, the ratings agency cautioned 

Moody's has estimated the Indian economy to clock a 6.4% growth in 2023-24. (HT_PRINT)Premium
Moody's has estimated the Indian economy to clock a 6.4% growth in 2023-24. (HT_PRINT)

BENGALURU : Moody’s Investors Service on Thursday raised India’s gross domestic product (GDP) growth forecast to 8.4% for 2022-23 from 7.9% estimated earlier on the back of stronger-than-expected post-pandemic economic recovery, supportive monetary policy, and a growth-oriented budget. However, high oil prices and supply distortions will remain a “drag on growth", the ratings agency cautioned in its latest Global Macro Outlook report.

“We have raised our 2022 calendar year growth forecasts for India to 9.5% from 7%, and maintained our forecast for 5.5% growth in 2023. This translates into 8.4% and 6.5% in fiscal years 2022-23 and 2023-24, respectively," the report said. It is in fact, higher than the government of India’s growth projections for FY23.

“In India (Baa3 stable), the fiscal 2022–23 budget, which focuses on infrastructure and other capital spending, will help consolidate growth…The speed of the recovery from the first lockdown-led contraction in Q2 2020, and subsequently in Q2 2021 during the Delta wave, was stronger than expected, and the economy is estimated to have surpassed the pre-COVID level of GDP by more than 5% in the last quarter of 2021, it added. It expects the Reserve Bank of India to begin tightening liquidity measures and to raise the repo rate in the second half of this year, “provided that growth momentum continues to improve."

While India’s Economic Survey has projected India’s GDP to expand between 8% and 8.5% in 2022-23, the Budget has assumed a GDP growth between 7.6% and 8.1% in real terms.

“Sales tax collection, retail activity and PMIs suggest solid momentum. However, high oil prices and supply distortions remain a drag on growth," said Moody’s.

The agency has estimated the Indian economy to clock a 6.4% growth in 2023-24.

Moody’s pointed out that its 9.5% growth forecast for 2022 assumes relatively restrained sequential growth rates, “thus, there is upside potential to the growth rate."

“We estimate the carry-over from a strong finish to 2021 will add 6%-7% to this year’s annual growth," said the report.

It also took note of the fact that the 2022-23 Union Budget has prioritized growth, with a 36% increase in allocation to capital expenditure (compared to BE of 2021-22) to 2.9% of GDP for fiscal year 2022-23, “which the government hopes will crowd in private investment." With the RBI leaving interest rates unchanged at its February meeting, monetary policy remains supportive, it added.

It also expected recovery in contact-intensive services sectors as the Omicron wave subsides. “With most remaining restrictions now being lifted with the improvement in the COVID situation, including the reopening of schools and colleges for in-person instruction across various states, the country is on its way to normalcy," it said.

Moody’s has estimated the G-20 economies collectively to expand by 4.3% in 2022, down from 5.9% in 2021. “The global economy is transitioning from a tentative recovery toward more stable growth, bolstered by improvement in the COVID-19 health situation," the report said.

While elevated commodity prices, demand-supply imbalances, inflation pressures, volatile financial markets and geopolitical tensions will make for a challenging backdrop, the ratings agency expects demand-supply distortions to resolve over 2022, with supply bottlenecks easing in the second half of the year.

“The escalation of the Russia-Ukraine situation poses risks to energy market stability and raises the prospect of potentially more severe sanctions on Russia," it said. Other risks include a potential worsening of the pandemic, repeated supply shocks, overly tight monetary policy, fallout from China's property market downturn to other economies, and rising social discontent.

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ABOUT THE AUTHOR
Dilasha Seth
" Dilasha Seth is a journalist reporting on macroeconomic policy for the last 11 years. She writes extensively on issues including international trade, macroeconomic data, fiscal policy, and taxation. At Mint, she reports on trade deals that India is signing besides key policy decisions of the Ministry of Finance. She closely tracked and covered the transition to the goods and services tax (GST) regime in 2017 and also writes on direct tax-related issues. In the past, she has worked with Business Standard and The Economic Times. She is based in Bangalore."
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Published: 24 Feb 2022, 12:35 PM IST
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