Moody's improves India's 2023 growth projection to 5.5% on higher capex allocation in Budget

This adjustment was based on the strong surge in capital expenditure in the Budget, as well as the continued resilient economic momentum.

However, Moody's has lowered its projection for India's economic growth in 2022 from 7% to 6.8%, which is a revision from the estimate made in November of last year.

Moody's revised its baseline projections for real growth in 2023 upwards in its February update to the Global Macro Outlook 2023-24 report. The upward revision was significant for several G20 economies, such as the US, Canada, the Euro area, India, Russia, Mexico, and Turkey. The agency's projections were based on the expectation of a stronger economic performance towards the end of 2022.

“In the case of India, the upward revisions additionally incorporate the sharp increase in capital expenditure budget allocation to Rs 10 trillion (3.3 per cent of GDP) for fiscal year 2023-24, up from Rs 7.5 trillion for the fiscal year ending in March 2023,” Moody’s said while projecting a 70 basis points increase in 2023 real GDP growth at 5.5 per cent and 2024 growth at 6.5 per cent.

According to Moody's, India's growth forecast has been "meaningfully raised" as strong economic data in the second half of 2022 has created substantial carry-over effects for 2023.

Moody's said emerging markets, including India, have shown greater-than-expected resilience to last year's financial tightening.

Moody's predicts that a reduction in US monetary policy tightening will stabilize or improve capital flows to emerging markets. However, as long as inflation remains a concern in advanced economies, emerging markets are likely to experience financial market volatility.