Moody's Raises India's GDP Growth Forecasts To 6.7% For CY2023 From Earlier 5.5%; Here's Why

Moody's Investors Services has raised its estimates for India's economic growth in the current year 2023 to 6.7% from the earlier forecast of 5.5% after strong services and capital expenditure expanded leading to an impressive growth of 7.8% in the second quarter of the year. However, Moody's trimmed its forecast for year 2024 GDP growth to 6.1%.

In its report titled, "Global macroeconomic outlook for G-20 economies, 2023-24F", Moody's said, "For G-20 emerging market countries, we expect real GDP growth in 2023 to be slightly higher at 4.3%, up from our previous estimate of 3.9%, due to meaningful upward revisions to our 2023 real GDP growth forecasts for India, Mexico, Brazil, Turkiye and Russia."

Moody's added that strong services expansion and capital expenditures propelled India's 7.8% real GDP growth in the second quarter from a year ago.

Accordingly, the rating agency said, "We have accordingly raised our 2023 calendar year growth forecast for India from 5.5% to 6.7%. Since the second quarter outperformance creates a high base in 2023, we have lowered our 2024 growth forecast from 6.5% to 6.1%."

Given the robust underlying economic momentum, Moody's also recognizes further upside risk to India's economic growth performance.

Further, Moody's said that India's monsoon season which runs from June to October could also see below-average rainfall, resulting in higher food prices. So far, as of August 29, the India Meteorological Department has estimated a 9% rain deficiency across the country. If El Niño this year proves to be particularly strong in the second half of 2023 and early 2024, agricultural commodity prices could shoot up.

It added, "The Reserve Bank of India's monetary policy committee left the repo rate unchanged for a third time in August. The recent uptick in food price inflation and uncertain El Niño-related weather conditions will delay monetary policy easing consideration until early next year. Domestic demand in India remains buoyant, and as long as core inflation remains relatively stable, rate hikes are also unlikely."

During the April to June 2023 period, India's gross domestic product (GDP) expanded to 7.80% in the first quarter of FY24, surpassing market expectations of 7.7% slightly. The growth is driven by the services sector coupled with consumer demand and a rise in government capital expenditure. Meanwhile, gross value added (GVA) at basic prices came in at 7.8% in the first quarter, as against 11.9% a year ago same period.

Sequentially, India's Q2 2023 GDP growth improved from 6.1% in Q4FY23 but was slower than the GDP rate of 13.1% witnessed in Q1 of the previous fiscal.

For the full year 2023-24 fiscal, RBI expects GDP growth to be at 6.5%.

Earlier in August, Moody's affirmed India's Baa3 rating with a stable outlook.

For the overall global economy, Moody's said, "Tight financial conditions will continue to dampen global economic growth through 2023 and keep growth below trend in 2024. For the G-20, we expect real gross domestic product (GDP) growth to slow to 2.5% in 2023 and 2.1% in 2024, from 2.7% in 2022."