The increasing interest rate, inconsistent monsoon and slowing global growth have prompted Moody’s Investors Service to once again downgrade India’s economic growth forecast for the calendar year 2022.
The global rating agency’s forecast of India’s GDP (gross domestic product) growth is now targeted at 7.7 per cent from the earlier prediction of 8.8 per cent.
In May, Moody’s lowered the country’s GDP growth estimate for the current calendar year to 8.8 per cent from its earlier projection of 9.1 per cent in March. It has also predicted further decline in the country’s GDP growth in 2023 and estimated it at 5.2 per cent.
The agency said, “India’s economic growth before the pandemic shock 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 digitisation of the economy.”
However, inflation remains a challenge with the Reserve Bank of India (RBI) having to balance growth and inflation, while also containing the impact of imported inflation from the depreciation of the Indian currency rupee, it added.
Although inflation eased slightly to 6.7 per cent in July, it remains above the Central bank’s target range of 2-6 per cent for the seventh straight month. The agency said in its Global Macro Outlook 2022-23 that inflation remains challenging for the RBI as it needs to balance the inflation and the growth. The imported inflation due to a weakening rupee against the US dollar appears to be another challenge for the RBI, the agency said.
In August, the RBI raised the policy repo rate for a third time by 50 bps to 5.4 per cent. So far, the RBI has raised the repo rate, the interest rate at which it lends to commercial banks, by 140 points, thereby taking it above the pre-pandemic levels.
“The Central bank is likely to remain hawkish this year and maintain a reasonably tight policy stance in 2023 to prevent domestic inflationary pressures from building further,” Moody’s added.
However, it said a quicker let-up in global commodity prices would provide significant upside to growth. “Economic growth would be stronger than we are projecting in 2023 if the private-sector Capex (capital expenditure) cycle were to gain steam,” the rating agency said.