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Moody's Analytics in its report on emerging market outlook has said that India's domestic economy, rather than trade, is its primary engine of growth and the slowdown in economic activity late last year will only be temporary. It said growth slowed substantially on a year-ago basis, with private consumption lagging overall GDP for the first time since the Delta wave of Covid-19 struck the economy in the second quarter of 2021.

It also said ‘Our take is that the slowdown late last year will be temporary and even salutary, helping to wring some of the demand-side pressures out of the economy without stopping it wholesale. On the external front, better growth in the US and Europe's incipient recovery will propel India at the mid-year mark’. The US and Europe are India's largest trade partners and are important destinations for exports of business services.

It further said India's domestic economy, rather than trade, is its primary engine, in contrast to most other emerging-Asia economies. It added ‘with this in mind we observe India's fourth-quarter performance with caution’. Sectors such as manufacturing and agriculture that are highly linked to private consumption spending either contracted or barely grew during December quarter of current fiscal. The normally faster-growing construction and retail and wholesale trade sectors came in somewhat hotter, though both lagged gains from earlier this year.

It noted that ‘While high interest rates have slowed the domestic economy and curbed imports, external imbalances have widened, putting pressure on the rupee and adding to inflation’. In the current fiscal (2022-23), the GDP is projected to grow by 7 per cent as per official estimates. This would require about 5 per cent GDP expansion in the fourth (January-March) quarter. In 2021-22 the economy grew 9.1 per cent. In 2020-21 (Covid-impacted year), the economy contracted 5.8 per cent, while in 2019-20 the growth was 3.9 per cent.