Moody’s cuts India’s 2022 growth to 9.1% on lower capex

Moody’s Investors Service on Thursday cut India’s growth forecast for 2022 to 9.1% from the earlier estimated 9.5%, cautioning that high global fuel and commodity prices on account of the Russia-Ukraine war could weigh on the government’s capital spending ability.

It also lowered the growth forecast for 2023 to 5.4% from the 5.5% estimated earlier.


“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,” Moody’s said in its latest Global Macro Outlook report.

Last month, the rating company raised India’s growth outlook for 2022 and 2023, citing stronger-than-expected post-pandemic recovery, supportive monetary policy, and a growth-oriented budget. However, the Russian invasion of Ukraine at the end of the month has drastically changed the economic scenario. “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 that we had not accounted for previously,” it said in its report.

It said India’s farm exports would benefit in the short term due to high global prices because India is a surplus grain producer. Moody’s ratings for India is currently Baa3 Stable.

Even as the Reserve Bank of India has continued with an accommodative stance so far, Moody’s expects RBI to start scaling back policy support.

Moody’s also lowered G20 economies’ growth forecast to 3.6% in 2022 compared to 4.3% estimated in February and said growth is expected to slow to 3% in 2023.

The Russian economy is forecast to contract by 7% in 2022 and 3% in 2023.


It pointed out that Russia’s invasion of Ukraine has significantly altered the global economic backdrop through three main channels. First, the spike in commodity prices driven by existing and expected supply shortages creates risks of damagingly high input costs and consumer inflation over an extended period. Second, financial and business disruptions pose risks to the highly integrated global economy. Third, heightened security and geopolitical risks will exert economic costs and weigh on the economy by denting sentiment. “We have lowered our baseline growth forecasts to capture these shifts in the global economic environment,” said Moody’s.

While India’s Economic Survey has projected India’s GDP to expand between 8% and 8.5% in 2022-23, the Union budget assumed growth of between 7.6% and 8.1% in real terms.

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