Moody's ups India growth estimates to 9.5% in CY2022 on stronger recovery

Rating agency Moody’s on Thursday revised India’s economic growth estimates in CY2022 upwards to 9.5 per cent from 7 per cent on stronger than expected recovery after lockdown in 2020 and Covid-19's Delta wave in 2021. It maintained a forecast for 5.5 per cent growth in CY2023.

In its update on Global Macro Outlook 2022-23 today, Moody's said sales tax collection, retail activity and Purchasing Managers Index suggest solid momentum. However, high oil prices and supply distortions remain a drag on growth for India.

The speed of the recovery from the first lockdown-led contraction in Q2CY2020, and subsequently in Q2CY2021 during the Delta wave, was stronger than expected. The economy is estimated to have surpassed the pre-Covid level of GDP by more than 5 per cent in the last quarter of CY2021.

As is the case in many other countries, the recovery is lagging in contact-intensive services sectors, but it 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 (India) is on its way to normalcy.

Moody’s said the global economy is transitioning toward more stable growth, bolstered by improvement in the Covid-19 health situation.

“The current economic cycle is remarkable in the swiftness with which activity has been restored in most major economies. But declining fiscal support, tighter monetary policy and waning pent-up demand will weigh on growth momentum in most countries,” it said.

"Our 9.5 per cent growth forecast for 2022 assumes relatively restrained sequential growth rates; thus, there is upside potential to the growth rate. The carry-over from a strong finish to 2021 will add six to seven per cent to this year’s annual growth," it further said.

Budget 2022 prioritises growth, with a 36 per cent increase in allocation to capital expenditure to 2.9 per cent of gross domestic product for FY23. This, the government hopes, will crowd in private investment. With the RBI leaving interest rates unchanged at its February meeting, monetary policy remains supportive.