Moody’s slashes India’s GDP forecast to 9.1% from 9.5% for 2022 amid high oil prices
In its Global Macro Outlook 2022-23 (March 2022 Update) titled: Economic Growth will suffer as fallout from Russia’s invasion of Ukraine builds, the rating agency said that India’s growth is likely to be 5.4 per cent in 2023.
FollowAmid high oil prices, global rating agency Moody’s on Thursday slashed India’s growth estimate for the current year 2022 to 9.1 per cent from 9.5 per cent estimated earlier, cautioning that high commodity prices and fertilizer import bill could limit the government’s capital expenditure on account of the Russia-Ukraine conflict could weigh on the government’s capital spending ability.
For India, which is a net oil importer, high energy and commodity prices will hurt the government’s finances. Additionally, for the fiscal year 2023, the rating agency has cut growth projections for India by 10 basis points to 5.4 per cent.
In its Global Macro Outlook 2022-23 (March 2022 Update) titled: Economic Growth will suffer as fallout from Russia’s invasion of Ukraine builds, the rating agency said that India’s growth is likely to be 5.4 per cent in 2023.
“India is particularly vulnerable to high oil prices given that it is a large importer of crude oil… High fuel and potentially fertilizer costs would weigh on government finances down the road, potentially limiting planned capital spending. For all of these reasons, we have lowered our 2022 growth forecasts for India by 0.4 percentage point,” said Moody’s Investors Service in its latest Global Macro Outlook report.
Moody’s had last month raised India’s growth outlook for 2022 and 2023 on the back of stronger-than-expected post-pandemic economic recovery, supportive monetary policy, and a growth-oriented budget. However, it was before the Russia-Ukraine conflict played out.
“We now expect the economy to grow by 9.1% this year, followed by 5.4% in 2023. Our forecast revisions also factor in the somewhat stronger underlying momentum than we had not accounted for previously,” the ratings agency said in its report.
It added that agri exports will benefit in the short term due to the high global prices because India is a surplus producer of grain.
Petroleum accounts for about one-fourth of India’s total imports while fertilisers share in total imports is 1.8 per cent. In terms of oil, India does not directly depend on its oil needs from Russia, but sanctions on Russia, the second largest oil exporter, have led to shortages. Benchmark crude oil prices shot up by about 25 per cent but it recently came down, below the $100 per barrel mark, in the light of ongoing Iran talks and hopes of Russia-Ukraine peace talk.
While India’s Economic Survey has projected India’s GDP to expand between 8 per cent and 8.5 per cent in 2022-23, the Budget has assumed a GDP growth between 7.6 per cent and 8.1 per cent in real terms.
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