According to Moody, the Indian economy is expected to achieve a growth rate of 6-6.3 per cent in the June quarter, while highlighting the risks of fiscal slippage resulting from weaker-than-anticipated government revenues in the current fiscal year. This growth estimate by Moody’s is lower than the Reserve Bank’s projection of 8 per cent for the first quarter. Gene Fang,Associate Managing Director at Moody’s Investors Service, stated that India has a relatively high level of general government debt, standing at around 81.8 per cent of GDP for 2022-23, with low debt affordability. Despite these challenges, India possesses a high growth potential and credit strengths such as a stable domestic financing base for government debt and a sound external position.
Fang mentioned that the growth in the first quarter of the current fiscal year is expected to remain relatively flat at 6-6.3 per cent compared to the 6.1 per cent recorded in the final quarter of fiscal 2022-23.
While household demand is anticipated to improve due to moderation in inflation, the lagged effects of higher interest rates pose some risks to gross fixed capital formation, which is an indicator of investment in the economy.
Moody considers India as a sovereign with a ‘Baa3’ rating, acknowledging its strengths in having a sizable and diverse economy as well as significant growth potential. This is evident in the relatively strong growth forecast despite the weaker global economic outlook.
The government has largely achieved its fiscal objectives over the past two years, alleviating concerns about fiscal policy. The fiscal deficit narrowed to 6.4 per cent of GDP in 2022-23 from 6.7 per cent in 2021-22, and it is budgeted to decrease further to 5.9 per cent of GDP in the current fiscal year.
However, Fang emphasized that as the government balances its commitment to long-term fiscal sustainability against the immediate priority of supporting the economy amid high inflation and weak global demand, and with general elections approaching by May 2024, there are risks of fiscal slippage arising from potentially weaker-than-expected government revenues.
Moody projects economic growth of 6.1 per cent and 6.3 per cent for the full fiscal years of 2023-24 and 2024-25, respectively. On a calendar year basis, growth is expected to reach 5.5 per cent in 2023 and could improve to 6.5 per cent in 2024.
The Reserve Bank of India (RBI) projected India’s GDP to expand by 6.5 per cent in the current fiscal year in its recent monetary policy. The RBI forecasted growth rates of 8 per cent for the June quarter, 6.5 per cent for the second quarter, 6 per cent for the third quarter, and 5.7 per cent for the fourth quarter.
Moody’s currently assigns a ‘Baa3’ sovereign credit rating to India with a stable outlook. This rating represents the lowest investment grade. All three major global rating agencies—Fitch, S&P, and Moody’s—have assigned India the lowest investment grade rating with a stable outlook. These ratings serve as indicators of the country’s creditworthiness and impact borrowing costs.
Fang pointed out that India’s general government debt level, estimated at approximately 81.8 per cent of GDP for the fiscal year 2022-23, is relatively high compared to the median of around 56 per cent for Baa-rated countries. The country also faces challenges in terms of low debt affordability, with general government interest payments estimated at 26 per cent of revenues for fiscal 2022-23, compared to the Baa median of around 8.4 per cent.
