Moody’s Flags Monsoon Risks, Cuts India’s Growth Forecast to 7%

As a result of poor rainfall, Moody’s cut India’s growth forecast to 7%; banking inflation targets achievable.

(Photo: Reuters)

Concerned that the slow pace of reform could dent growth, Moody’s Investors Service cut India’s growth forecast for this fiscal year to around 7 per cent from 7.5 per cent projected earlier, citing below-normal rainfall.

We have revised our GDP growth forecast down to around 7 per cent in light of a drier-than-average monsoon although rainfall was not as low as feared at the start of the season.
— Moody’s Investors Service

However, India’s growth outlook is resilient and can withstand short-term monsoon effects. As a result, Moody’s forecast for 2016-17 has not changed and remains at 7.5 per cent.

One main risk to our forecast is the pace of reforms slows significantly as consensus behind the need for reforms weakens once the least controversial aspects of the government’s plan have been implemented.
— Moody’s Investors Service

Moody’s growth projection is lower than the estimates of International Monetary Fund (IMF), which projected India to grow at 7.5 per cent in 2015-16.

According to Moody’s Sovereign Rating Analyst Asti Sheth, the GDP forecast hinges on three parameters:

• First, the recent macro-economic and bank credit growth data, which shows economic indicators are moving in a positive direction, albeit slowly.
• Second, although this year’s has received more rainfall than was originally anticipated, a significant boost to rural incomes is unlikely.
• Finally, given generally subdued global growth conditions and uncertain global financial environment, external markets have also not provided a boost in growth.

On inflation, Moody’s said:

Barring a large shock to commodity prices or food inflation, we think that the central bank’s inflation targets are achievable.

(With inputs from PTI)