Global rating agency Moody’s on Thursday revised up its real growth forecast for India to 9.5% for the calendar year 2022 from 7% predicted earlier but it flagged elevated oil prices and supply distortions as a potential drag on growth. It retained its 2023 growth forecast for India at 5.5%.
Brent crude oil prices crossed $105 a barrel in intraday trade on Thursday, the highest since 2014, in response to Russia’s attack on Ukraine.
Moody’s also raised its growth projections to 8.4% for the next financial year starting April 1 (from 7.9% reported earlier) and to 6.5% for FY24. “The speed of the recovery from the first lockdown-led contraction in Q2 of 2020, and subsequently in Q2 of 2021 during the Delta wave, was stronger than expected, and the economy is estimated to have surpassed the pre-Covid level of GDP by more than 5% in the last quarter of 2021. Sales tax collection, retail activity and PMIs suggest solid momentum. However, high oil prices and supply distortions remain a drag on growth,” the agency said in a statement.
Just like the case in many other countries, the recovery in India is lagging in contact-intensive services sectors, but it should pick up as the Omicron wave wanes, Moody’s said.
The country is on its way to normalcy, as most of the remaining restrictions are now being lifted with the improvement in the Covid situation, including the reopening of schools and colleges across various states, it said.
“Our 9.5% growth forecast for 2022 assumes 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% to this year’s annual growth,” according to the statement.
With a 36% hike in allocation to capital expenditure to 2.9% of GDP, the Budget for FY23 prioritises growth. The government hopes that it will crowd in private investment and given the fact that the RBI has left interest rates unchanged at its February meeting, monetary policy remains supportive, Moody’s said.
