Global challenges won’t dent India’s recovery: Moody’s

Global ratings firm Moody’s Investors Service said on Tuesday that it does not expect the consequences of rising challenges facing the global economy, such as a slowdown. Russia-Ukraine military conflictHigh inflation, and dire financial conditions to derail India’s ongoing recovery from the pandemic in 2022 and 2023.

While it lowered its growth forecast for the Indian economy to 7.6% in 2022-23, citing high inflationRising interest rates, uneven monsoon distribution, and slowing global growth as a slowdown for a ‘gradual basis’ economic momentum, Moody’s said, is easing risks from negative feedback between the economy and the financial system and India’s sovereignty. for its Baa3 credit rating. ,

“While the risks posed by a higher debt burden and weaker credit capacity remain, we expect the economic environment to allow for a gradual contraction in the general government fiscal deficit over the next few years, avoiding further deterioration in the sovereign credit profile. for,” the firm said in a credit opinion update.

The agency expects real GDP growth to be 6.3% in 2023-24, while inflation is projected to average 6.8% during this fiscal and 5% next year. Moody’s also projected that India’s current account deficit this year will rise to 3.9% of GDP from 1.2% in 2021-22, and remain high at 3% of GDP in 2023-24.

“We expect inflationary pressures to weaken in the second half of 2022 and further into 2023, while high-frequency data shows strong and broad-based underlying momentum in services and manufacturing sectors such as PMI, capacity and services and manufacturing as per survey data. Utilization, mobility, tax filing and collection, business income and credit indicators. As such, we continue to see India as the fastest growing economy among our G20 peers in both 2022 and 2023,” Moody’s said in the update. Has been mentioned.

While the agency listed India’s large and diversified economy with high growth potential, a stable domestic financing base for government debt and a relatively strong external position as its credit strength, it highlighted the country’s high general government debt and major credit challenges. Identified limited government effectiveness in reducing a weak spot.

Predicting that India’s ‘growth volatility’ will ‘revert to pre-pandemic levels’, Moody’s said the much larger domestic market has provided strong demand-driven growth and that global demand will ‘return to volatility’ in the economy. Shelter from ‘ has helped. However, it marked India’s high exposure to climate change risks, such as the agricultural sector’s significant reliance on monsoon rains, as half of the land under cultivation was irrigated, while excessive groundwater use and rising temperatures posed scarcity challenges. was extended.

“The magnitude and spread of seasonal monsoon rainfall varies from year to year and affects agricultural sector growth, food price inflation and consumption – especially given that half of India’s total consumption comes from rural areas and many rural Incomes are dependent on agriculture,” it noted, adding that the country ‘still has the capacity to withstand shocks to the ability of low-income households’.

“We consider India’s legislative and executive institutions, civil society and judiciary to be relatively strong. However, in our view, policy effectiveness has been lower than some international surveys, including global governance indicators, suggest. While ongoing government efforts to reduce corruption, formalize economic activity and boost tax collection and administration should further strengthen institutions in the medium term, risks to their effectiveness are mounting,” the firm said in its statement. Said in detailed credit views.

Moody’s said India’s political risk, or the potential for political tensions – domestic or geopolitical – to physically damage the economy, is relatively low in the ability of officials to implement government budgets or policy measures.

“However, there are some areas of religious, ethnic or social conflict that can affect political or economic outcomes, while bilateral tensions with neighboring Pakistan and China have erupted from time to time without a significant escalation that impedes economic activity. does. India’s income inequality and unequal access to basic services amplify social risks that could affect political stability,” Moody’s said.