Moody’s raised India’s growth forecast for CY22 to 9.5%

Moody’s Investor Services on Thursday upped India’s GDP forecast for calendar year 2022 by 250 basis points to 9.5 per cent. This also translates growth estimate for FY23 to 8.4 per cent.

For the calendar year 2023, it maintained its forecast at 5.5 per cent while for FY24, the number is 6.5 per cent.

“The speed of the recovery from the first lockdown-led contraction in Q2 2020, and subsequently in Q2 2021 during the Delta wave, was stronger than expected and the economy is estimated to have surpassed pre-Covid GDP levels by more than 5 per cent in the last quarter of 2021. Sales tax collection, retail activity and PMIs suggest solid momentum,” the agency said in its February update of Global Macro Outlook 2022-23

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Full fiscal (FY23) projection is 60 basis points higher than the Reserve Bank of India’s (RBI) forecast of 7.8 per cent but in line with estimate made in Economic Survey. The Survey gave an estimated real GDP growth rate of 8-8.5 per cent for the next financial year, with the 2022 Budget assuming a nominal GDP growth rate of 11.1 percent. The Budget’s nominal growth number means growth rate could be less than 8 per cent in next fiscal.

The agency, however, appears to be concerned about rising crude prices which hit $100 a barrel on Thursday.

“High oil prices and supply distortions remain a drag on growth,” it said.

Covid recovery

Further it mentioned that as is the case in many other countries, recovery is lagging in contact-intensive services sectors but should pick up as the Omicron wave subsides.

“With most remaining restrictions now being lifted with the improvement in the Covid situation, including the reopening of schools and colleges for in-person instruction across various states, the country is on its way to normalcy,” the agency said.

Talking about forecast for the calendar year, the agency said it assumed relatively restrained sequential growth rates; thus, there is upside potential to the growth rate.

“We estimate the carry-over from a strong finish to 2021 will add 6-7 per cent to this year’s annual growth. The 2022 Union Budget prioritises growth, with a 36 per cent increase in allocation to capital expenditure to 2.9 per cent of GDP for FY23, which the government hopes will crowd in private investment,” the agency said.

Supportive RBI policy

Talking about monetary policy, the agency said that the Reserve Bank of India (RBI) decided to maintain its supportive policy stance in February, leaving the benchmark repo rate and the corridor between the repo and the reverse repo, citing a still incomplete consumption recovery.

The monetary policy committee’s statement struck a decidedly dovish tone, stating that an “accommodative stance will be maintained for as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward.” The RBI expects inflation to remain close to the upper limit of the target band due to base effects but to fall back in Q4 of the 2022 calendar year.

“We expect the RBI to begin tightening liquidity measures and to raise the repo rate in the second half of this year, provided that growth momentum continues to improve,” the agency said.

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