Moody’s Projects 6-6.3% GDP Growth for India in June Quarter, Flags Fiscal Risks

Moody’s Investors Service has forecasted a growth rate of 6-6.3% for India’s GDP in the June quarter. While this estimate is lower than the Reserve Bank of India’s projection of 8% for the first quarter, Moody’s remains cautious about fiscal slippage due to weaker-than-expected government revenues. Despite these concerns, Moody’s acknowledges India’s credit strengths, including a stable domestic financing base for government debt and a sound external position.

Growth Outlook for India:

Moody’s Associate Managing Director, Gene Fang, expects India’s growth to be around 6-6.3% in the first quarter of the current fiscal year, which is relatively flat compared to the 6.1% recorded in the final quarter of the previous fiscal year. While household demand is anticipated to improve with moderation in inflation, there are potential risks to gross fixed capital formation due to the lagged effects of higher interest rates.

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India’s Credit Strengths:

According to Fang, India possesses several credit strengths despite its rating of ‘Baa3’ (the lowest investment grade) by Moody’s. These strengths include a large and diversified economy with high growth potential. Despite a weaker global economic outlook, India’s growth forecast for the year remains relatively strong. Fang also mentions that the government has largely met its fiscal objectives over the past two years, which helps alleviate concerns about fiscal policy.

Fiscal Risks and Deficit Targets:

Moody’s notes that India’s general government debt stands at approximately 81.8% of GDP for the fiscal year 2022-23, higher than the Baa-rated median of around 56%. Additionally, India’s debt affordability, measured by general government interest payments as a percentage of revenues, is estimated to be 26% for fiscal 2022-23, compared to the Baa median of around 8.4%. Moody’s highlights the risk of fiscal slippage arising from weaker-than-expected government revenues, as the government aims to balance longer-term fiscal sustainability with the immediate priority of supporting the economy.

Moody’s Growth Projections:

Moody’s projects economic growth in India to be 6.1% and 6.3% for the fiscal years 2023-24 and 2024-25, respectively. On a calendar year basis, Moody’s expects growth to reach 5.5% in 2023, with potential improvement to 6.5% in 2024.

Comparison with Reserve Bank of India’s Projection:

The Reserve Bank of India (RBI) projects India’s GDP to expand by 6.5% in the current fiscal year, with growth rates for each quarter varying. The RBI’s projections include 8% growth for the June quarter (Q1), followed by 6.5% in Q2, 6% in Q3, and 5.7% in Q4.

Rating Agencies’ Outlook:

All three global rating agencies – Fitch, S&P, and Moody’s – have assigned India the lowest investment grade rating with a stable outlook. These ratings are significant indicators of the country’s creditworthiness and can influence borrowing costs.

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