Moody’s Upgrades India’s 2023 GDP Growth Forecast to 6.7%

Moody’s Upgrades India’s 2023 GDP Growth Forecast to 6.7%: Moody’s Investor Service, a global rating agency, has upgraded its economic growth prediction for India, presenting a positive outlook for 2023. The agency has increased its forecast for India’s Gross Domestic Product (GDP) growth to 6.7 percent, up from the previous estimate of 5.5 percent. This adjustment is due to the strong performance in the second quarter, which was driven by significant growth in services and capital expenditures, resulting in 7.8 percent real GDP growth over the previous year.

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Initial Forecast: Moody’s previously estimated India’s GDP growth for 2023 at 5.5 percent.

• Revised Projection: The agency boosted its prediction for 2023 to 6.7 percent due to significant service expansion and capital expenditures, resulting in 7.8 percent real GDP growth in the second quarter.

2024 Outlook Adjusted Due to High Base

• 2024 GDP Forecast: Moody’s has lowered India’s 2024 GDP growth projection from 6.5 percent to 6.1 percent.
• Reasoning: This adjustment was necessary by the high base generated by 2023’s second quarter outperformance.

Recognizing Upside Risks

• Positive Momentum: Moody’s acknowledges India’s robust underlying economic momentum.
• Potential Upside: The agency recognizes further upside potential for India’s economic growth.

Monsoon Season and Inflation Concerns

• Monsoon Impact: Moody’s notes concerns about below-average rainfall during India’s monsoon season, potentially leading to higher food prices.
• El Niño Risk: The strength of El Niño in late 2023 and early 2024 could further affect agricultural commodity prices.

Monetary Policy Considerations

• Repo Rate Unchanged: Due to rising food price inflation and uncertain weather circumstances, the Reserve Bank of India’s monetary policy committee has decided to hold the repo rate steady.
• Easing Delayed: Monetary policy easing considerations are expected to be deferred to early next year.

Buoyant Domestic Demand and Inflation Stability

• Strong Domestic Demand: Moody’s highlights India’s buoyant domestic demand.
• Stable Core Inflation: As long as core inflation remains relatively stable, the agency believes that rate hikes are unlikely.

Recent Economic Performance

• Q1 FY 2023 GDP: India’s GDP growth rate in the first quarter of the current fiscal year was 7.8 percent, indicating increased economic activity.
• Sectoral Growth: India’s manufacturing, services, and export sectors have experienced robust growth, complemented by strong tax collection.
• Government’s View: Finance Minister Nirmala Sitharaman expects India’s economic growth to remain robust through at least the end of 2023.