Moody’s upgrades India’s 2023 GDP growth estimates to 5.5% on account of resilient economy, higher capex allocation

• Moody’s upgraded India’s GDP growth estimates for 2023 to 5.5%.
• Indian economy’s resilience and higher capex allocation in the Budget are key drivers for the GDP upgrade.
• The agency upgraded its outlook for Mexico, Russia, Saudi Arabia and Turkiye as well.

Global credit rating agency Moody’s upgraded India’s GDP growth estimates for 2023 by 70 basis points to 5.5% on Wednesday. It cited resilience of the economy to the global headwinds last year, and a higher capital expenditure allocation by the Indian government in Budget 2023 as reasons for the same.

In November last year, Moody’s pegged the Indian economy to grow at 4.8%, much lower than its peer Goldman Sachs which anticipated a growth rate of 5.9%.

“Economic momentum in a number of large emerging market countries, including India, Brazil, Mexico and Turkiye, has proved more resilient to last year’s tightening in the global and domestic financial environment than we had anticipated,” Moody’s said.

The agency upgraded its outlook for Mexico, Russia, Saudi Arabia and Turkiye as well.

The rating agency anticipates that any let up in rate hikes by the US Fed will aid in stabilising capital flows to these emerging markets. That said, until inflation comes under control in advanced countries, the agency expects markets in the countries to remain volatile.

Emerging market economies like India acting proactively on inflation and front-loading rate hikes has “prevented second-round inflationary dynamics from taking hold”, Moody's said.

‘Strong H2 2022 led to large carry-over effects’

Moody’s was optimistic on not just the Indian economy’s prospects in 2023, but also several other large economies. The agency said the reason for its optimism was that a strong showing in the second half of 2022 has created “large carry-over effects for 2023”.

“In the case of India, the upward revisions additionally incorporate the sharp increase in capital expenditure budget allocation to ₹10 lakh crore (3.3% of GDP) for fiscal year 2023-24, up from ₹7.5 lakh crore for the fiscal year ending in March 2023,” the Moody’s report added.

The Indian government’s capex push was one of the highlights of Budget 2023, even as it continued to focus on fiscal consolidation. Overall, the government’s capex outlay increased over three-fold from ₹3.1 lakh crore in FY19 to ₹10 lakh crore in FY24.

GDP upgrade despite moderation in Q3 FY23 growth

Moody’s upgrade comes a day after the Indian economy’s Q3 GDP growth came in at 4.4% lower than estimates. The slower pace of growth was due to a decline in consumption.

“Sharp moderation in consumption dragged the economy, which along with slowing imports is indicating towards slowing domestic demand,” said a JM Financial Services report.

Despite the decline in private consumption, analysts remain optimistic about the Indian economy’s growth in FY23. “Today’s growth number is broadly in line with RBI’s own projections, and is unlikely to shift RBI’s projections materially,” said Rahul Bajoria, MD & Head, Emerging Market Asia (ex-China), Barclays.

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