Moody’s forecast. Moody’s cuts 2022 growth forecast for India to 9.1 per cent

Moody’s Investor Services on Monday lowered its growth projection for India for the calendar year 2022 to 9.1 per cent from 9.5 per cent. Also, for the next calendar i.e., 2023, its estimate is down by 10 basis per cent to 5.4 per cent.

The agency has also cut global forecast for current calendar by 70 basis points to 3.6 per cent.

“India is particularly vulnerable to high oil prices given that it is a large importer of crude oil. Because India is a surplus producer of grain, agricultural exports will benefit in the short term from high prevailing prices. High fuel and potentially high fertilizer costs would weigh on government finances down the road, limiting planned capital spending. For all of these reasons, we have lowered our 2022 growth forecasts for India by 0.4 percentage point,” the agency said in its latest outlook.

Further it mentioned that forecast revisions also factor in the somewhat stronger underlying momentum than it had not accounted for previously.

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Inflation outlook revised

The agency has also revised its outlook for inflation for the calendar year. Now it expects inflation to be 6.6 per cent for 2022, 1.6 per cent higher than previous estimate. Similarly for 2023, forecast for inflation is now 5 per cent, which is 0.8 per cent higher than the February forecast.

Talking about country specific gain amidst price surge at global level, the agency said that for Australia, increased wheat and iron ore export revenue will mitigate the negative effects of the oil shock in the short term. Likewise, Indonesia is a major producer and exporter of palm oil, a substitute for sunflower oil, while India stands to benefit from exports of wheat. For these economies, the rise in exports of these commodities will offset other headwinds to a degree.

While Australia is a net importer of crude oil, it is a large exporter of coal and iron ore, both of which have also seen a steep rise in prices. The euro area, China, Indonesia, Japan, Korea, South Africa, Turkey and India are also net crude oil importers to various degrees and therefore more exposed to the oil price shock, it said.

Rising cost of living

According to the agency, whether or not a country is a net importer, high oil prices will raise households’ cost of living directly through higher energy prices and indirectly through increases in the costs of transportation and production of other goods and services. In Brazil, Mexico, the euro area, Turkey, South Africa and India, energy prices make up more than 8-14 per cent of the CPI (Consumer Price Index) basket. For most G-20 economies, it expects high oil prices to build into broad inflationary pressures.

Higher inflation will result in policy revision as the agency says: “As firms continue to pass higher input costs to consumers, we expect the Reserve Bank of India and Bank Indonesia to also begin to scale back policy support.” Monetary Policy Committee (MPC) is slated to meet early next month. Although retail inflation in India is ruling over 6 per cent and wholesale inflation has been in double digits for 11 successive months, experts feel MPC may continue to wait for some more time. before making any policy changes.

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