Moody’s downgrades India GDP growth projection from 7.7% to 7% for 2022


New Delhi: Anticipating a global slowdown and high local interest rates dampening economic momentum, Moody’s on Friday cut India’s GDP growth forecast for 2022 to 7%.

India’s growth forecasts for 2022 have been cut by Moody’s Investors Service in twice as many months. The outlook for the year dropped from the estimated 8.8 percent in May to 7.7 percent in September.

India’s projected real GDP growth for 2022 has fallen from 7.7% to 7.0%. The 2023-24 Global Macro Outlook stated that the downward revision will see rising inflation, high interest rates and sluggish global growth dampen economic momentum more than expected.

According to Moody’s, the growth rate will slow to 4.8% in 2023 and then increase to 6.4% in 2024.

According to Moody’s, the Indian economy is set to expand by 8.5% in the calendar year 2021. According to official GDP estimates, the economy grew by 13.5% between April and June 2022-2023, compared with 4.10% growth between January and March. The GDP data for the September quarter will be published at the end of this month.

Inflation has been above the RBI’s tolerance ceiling of 6% for most of this year, according to Moody’s, which said a depreciating rupee and rising oil prices would continue to push inflation higher.

While wholesale inflation has been in double digits for the 18th consecutive month at 10.7 percent, retail inflation rose to 7.41 percent in September. In order to curb inflation, the central bank raised the interest rate by 190 basis points to 5.90% between May and September.

As part of its strategy to curb inflation and maintain the exchange rate, Moody’s expects the RBI to increase the repo rate by around 50 basis points more.

The RBI has stated that if the rate hike has the desired effect of curbing inflation, it may eventually shift its focus from inflation management to growth considerations. Moody’s has cut its forecasts for India’s economic growth for the current fiscal year (April-March), citing the slowdown in the global economy, the conflict in Ukraine and Russia, rising interest rates and inflation.

The IMF cut its growth forecast for India to 6.8% from 7.4%, while the World Bank revised its estimate by 100 basis points to 6.5%. The Asian Development Bank also lowered its forecast from 7.5% to 7%.

S&P Global Ratings cut its growth forecast for the current fiscal year from 8.7% to 7.3%. RBI projects GDP growth of 7% for the current financial year.

According to Moody’s, the basically stable economic dynamics is supported by the revival of service activity. The utilization of production capacity and public capital expenditures both improved.

September exports fell from their peak in March, but are still roughly 30% higher than before the outbreak. Non-food loans are growing at a strong pace.

The private sector is currently in a strong position to increase capital investment. The credit rating agency also drew attention to the fact that the Production-linked Incentive System is operating, which aims to attract investments in 14 important manufacturing industries.

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