Moody’s Ratings has adjusted its forecast for India’s GDP growth in 2023-24 to approximately 8 percent
The projection follows a statement by RBI Governor Shaktikanta Das, who suggested that the economic growth for the ongoing fiscal year might hover around 8 percent, considering the recent third-quarter GDP data released by the government.
On Thursday, Moody’s Ratings increased its GDP growth projection for India in 2023-24 to approximately 8 percent from the previous estimate of 6.6 percent, citing robust domestic consumption and capital expenditure as contributing factors.
The projection was made following RBI Governor Shaktikanta Das’ statement, made a day earlier, suggesting that economic growth for the ongoing fiscal year might approach 8 percent, considering the third-quarter GDP data released by the government.
Moody’s latest estimate is approximately 140 basis points higher than its previous projection of 6.6 percent, which was made in November 2023.
The forecast is much higher than the ones given by its peers as well as by the IMF and World Bank and comes close on the heels of the India’s Central Statistics Office ramping up the growth for the fiscal to 7.6 per cent from 7.3 per cent.
“In a report, Moody’s stated that they anticipate India to be the fastest-growing economy among major G20 countries, with its real GDP growth projected to accelerate to approximately 8 percent in the fiscal year ending March 2024 (fiscal 2023-24) from 7 percent in fiscal 2022-23,” said the report.
Moody’s last assessment of India’s sovereign rating was in August, during which it maintained a ‘Baa3’ rating for India with a stable outlook.
After the Union budget was presented on February 1, a senior official from the rating agency remarked that a significant portion of India’s budget is allocated to servicing debt, posing challenges for a potential upgrade in the sovereign rating.
India’s economic growth will be supported by government capital expenditure and robust domestic consumption.
Additionally, India stands to gain from expanded global trade and investment prospects resulting from companies’ efforts to reduce dependence on China, according to the report.
“We expect India’s inflation rate will decline to 5.5 per cent in 2023-24 from a peak of 6.7 per cent in fiscal 2022-23, and further disinflation will support monetary easing going forward,” it said.
Regarding the banking sector, the report indicated that non-performing assets (NPAs) are expected to continue declining as the operating environment improves.
As of September-end 2023, the system-wide NPA ratio decreased to 3.2 percent from a peak of 11.2 percent at the end of March 2018, primarily due to recoveries and write-offs of legacy problem loans.
Slippage ratios, which measure the ratio of newly recognized NPAs to total standard assets during a period, are anticipated to remain low, supported by India’s robust economic growth.
Moody’s predicts that banks’ Common Equity Tier 1 ratios will decrease by 50-80 basis points due to an increase in risk weights for exposures to Non-Banking Financial Companies (NBFCs) and unsecured retail loans.
However, banks’ capitalization is expected to remain strong as their internal capital generation keeps pace with capital consumption. Additionally, they are likely to have easy access to capital if needed, given India’s vibrant equity market.
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