India GDP Growth: Moody's Says Economy To Rebound Strongly, FY22 Growth Pegged At 9.3%

Moody's cautioned that if new waves of infections were to occur, it could cause fresh lockdowns and erode consumer sentiment.

New Delhi: Hinting at a strong recovery of the Indian economy, rating agency Moody’s pegged GDP growth of 9.3 percent and 7.9 percent in the fiscal year 2022 (ending on 31 March 2022) and fiscal 2023, respectively.

The rating agency expected India's economic growth to rebound strongly, according to the report quoted in publication Mint. Growing government spending on infrastructure will support demand for steel and cement, Moody's said. Meanwhile rising consumption, India’s push for domestic manufacturing, and benign funding conditions will support new investments, the rating agency added in its new report.

What are the reasons behind the expected growth?

The report said India’s rising vaccination rate, stabilizing consumer confidence, low-interest rates and higher public spending underpin positive credit fundamentals for nonfinancial companies.

 “India’s steady progress on inoculation against the coronavirus will support a sustained recovery in economic activity. Consumer demand, spending, and manufacturing activity are recovering following the easing of pandemic restrictions. These trends, including high commodity prices, will propel significant growth in rated companies’ EBITDA over the next 12-18 months," said Sweta Patodia, a Moody’s Analyst.

What are concerns for the economy?

However, the report cautioned that if new waves of infections were to occur, it could cause fresh lockdowns and erode consumer sentiment. Such a scenario would dampen economic activity and consumer demand, potentially leading to subdued EBITDA growth of less than 15 percent -20 percent for Indian companies over the next 12-18 months, Moody's said.

It also pointed out that the delay in government spending, energy shortages that lower industrial production, or softening commodity prices may curtail companies’ earnings.

The low-interest rates will help in cutting funding costs and support new capital investment as demand grows but rising inflation may result in a faster-than-expected increase in interest rates, which would weigh on business investment, it added.

Moody's outlook for India's rated nonfinancial companies reflects its expectations for fundamental business conditions in this sector over the next 12-18 months