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Informist, Thursday, Aug 29, 2024

 

--Moody's ups India 2024 GDP growth view to 7.2% from 6.8?rlier

--Moody's ups India 2025 GDP growth view to 6.6% from 6.4?rlier 

--Moody's cuts India 2024 CPI inflation forecast to 5.0% from 5.2% 

--Moody's retains India 2025 CPI inflation forecast at 4.8% 

--Moody's: See 2024 GDP growth higher if pvt consumption gains traction 

--Moody's: Household consumption may grow as CPI eases near to 4% aim 

--Moody's: Rural demand seen reviving 2024 on better agri output 

--Moody's: Rural demand seen reviving 2024 on above-normal monsoon 

--Moody's: India econ in sweet spot on solid growth, moderating CPI 

--Moody's: See 6-7?on growth in 2024 based on present conditions 

--Moody's: Broad-based recovery underway, econ may remain resilient 

 

NEW DELHI – Moody's Ratings today raised its forecast for India's GDP growth in the current calendar year by 40 basis points to 7.2%, and for 2025 by 20 bps to 6.6%. The rating agency, on the other hand, lowered its Consumer Price Index inflation forecast for the country in 2024 by 20 basis points to 5.0%. Moody's kept its forecast for average CPI inflation for 2025 unchanged at 4.8%.

 

"...a broad-based recovery is underway in India and is likely to remain resilient," the rating agency said. The Economic Survey for 2023-24 (Apr-Mar) projected India's GDP growth to be in the range of 6.5-7%.

 

India's GDP grew 7.8% in the March quarter and 8.2% in 2023-24 (Apr-Mar). The Reserve Bank of India has projected GDP to grow 7.2% in 2024-25.

 

India's CPI inflation fell to a 59-month low of 3.54% in July from a four-month high of 5.08% in June, latest data shows. This is the first time CPI inflation has fallen below the RBI's target of 4% since September 2019. This does not warrant a cheer, however, as the fall in the headline print was mainly because of the statistical effect of a high base. The base effect was such that had the overall index remained unchanged in July from the previous month, headline inflation would have fallen to 2.09%.  

 

Moody's also said that the Indian economy is in a "sweet spot, with the mix of solid growth and moderating inflation".

 

Though the agency's outlook on growth is positive, there is a broad expectation of moderation in the GDP print for the second quarter of 2024. 

 

India's GDP growth is likely to have moderated to a five-quarter low of 6.9% in Apr-Jun, mainly because of a slowdown in government spending due to the general election, according to an Informist poll. The National Statistical Office is scheduled to release GDP data for Apr-Jun on Friday.

 

Growth last year was led primarily by government-led capital expenditure. But with government spending limited on account of the Model Code of Conduct imposed during Apr-Jun for the general election, GDP growth is likely to have declined, according to experts.

 

In fact, the RBI earlier this month lowered its GDP growth forecast for Apr-Jun by 10 basis points to 7.1%, citing lower-than-expected general government expenditure and corporate profitability. The Centre’s total expenditure declined 7.7% on year in Apr-Jun, and capital spending slumped 35.0%.

 

"These forecast changes assume strong broad-based growth, and we recognise potentially higher forecasts if the cyclical momentum, especially for private consumption, gains more traction," Moody's said. 

 

Moody's commentary on an uptick in private consumption comes at a time when the Indian economy has been facing major challenges on that front. Consumption demand was at a record low of 4.0% in 2023-24, if we discount the pandemic-hit year of 2020-21. Even though India's GDP grew 8.2% in 2023-24, driven by 9.0% investment growth, consumption growth lagged at a paltry 4.0%.

 

One of the biggest reasons for this was the weak demand in the rural economy.

 

The rating agency said that signs of a revival in rural demand are already emerging, on the back of improving prospects for agricultural output amid above-normal rainfall during the monsoon season.

 

Farmers across the country have sown kharif crops across 106.5 mln ha as of Tuesday, up 2% from a year ago, with notable increases in acreage of paddy and pulses, data from the agriculture ministry showed. The sowing has improved since July due to increased rainfall after a slow start in June.

 

The area under paddy, one of the most important kharif crops, rose 4% on year to 39.4 mln ha as of Tuesday. After deficient production last year, the acreage under pulses was also up 6% on year at 12.2 mln ha as of Tuesday.

 

Monsoon, on the other hand, after a slow start, broadly recovered. So far in the season, rainfall has been normal in 19 of the 36 subdivisions in the country. Rainfall was "excess" in nine, and "deficient" in five subdivisions, the India Meteorological Department said on Wednesday. Rainfall was in "large excess" in three subdivisions since Jun 1, it said.

 

Besides the recovery in rural demand, Moody's said that household consumption is poised to grow as headline inflation eases to the central bank's 4% target. According to the central bank's projections that it has detailed so far, the average headline inflation is seen above 4% even in 2025-26 at 4.1%. 

 

In their conclusion, Moody's said "6-7% growth should be possible for the economy sheerly on the basis of present conditions". It added that "over the medium and longer term, India’s growth prospects depend on how well the country can productively tap its substantial pool of labour."

 

An RBI staff paper, titled 'Measuring the Contribution of Labour Composition in Gross Value Added in India – The Human Capital Approach', published in July said the growth accounting exercise in KLEMS (Capital, Labour, Energy, Materials and Services) framework shows that employment contributed around 25% to output growth, with labour quality contributing an additional 5% on average during 1980-81 to 2021-22. Thus, the labour input, combined employment and quality, accounted for 30% of overall output growth during that period.  End

 

Reported by Priyasmita Dutta

Edited by Avishek Dutta and Rajeev Pai

 

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