Moody's ups GDP projection to 6.7% for CY2023 on robust economic momentum

Moody's Investors Service on Friday raised India's growth projection for 2023 calendar year to 6.7 per cent on account of robust economic momentum.

"Strong services expansion and capital expenditures propelled India's 7.8 per cent real GDP growth in the second (April-June) quarter from a year ago. We have accordingly raised our 2023 calendar year growth forecast for India from 5.5 per cent to 6.7 per cent," Moody's said in its Global Macro Outlook.

"Given the robust underlying economic momentum, we also recognise further upside risk to India's economic growth performance," it added

Moody's said since the second quarter outperformance creates a high base in 2023, "we have lowered our 2024 growth forecast from 6.5 per cent to 6.1 per cent".

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 per cent rain deficiency across the country.

If El Nio this year proves to be particularly strong in the second half of 2023 and early 2024, agricultural commodity prices could shoot up, Moody's 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 Nio-related weather conditions will delay monetary policy easing consideration to early next year.

"Domestic demand in India remains buoyant, and as long as core inflation remains relatively stable, rate hikes are also unlikely," Moody's said.