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Moody's Investors Service has slashed India's Gross domestic product (GDP) growth projection for 2022 to 7.7 per cent, saying that rising interest rates, uneven monsoon, and slowing global growth will dampen economic momentum on a sequential basis. Moody's had in May projected India's GDP to expand by 8.8 per cent this year. The economy grew by 8.3 per cent in 2021 and contracted by 6.7 per cent in 2020, the year when the pandemic struck the country.

In its update to Global Macro Outlook 2022-23, Moody's said India's central bank is likely to remain hawkish this year and maintain a reasonably tight policy stance in 2023 to prevent domestic inflationary pressures from building further. It expects inflationary pressures to weaken in the second half (July-December) of the year and further in 2023. It said a quicker let-up in global commodity prices would provide significant upside to growth. In addition, economic growth would be stronger than we are projecting in 2023 if the private-sector capex cycle were to gain steam.

Moody's said high-frequency data for the Indian economy shows strong and broad-based underlying momentum in the first four months of fiscal year 2022-23 (April-July). As per official GDP estimates, the Indian economy expanded 13.5 per cent in April-June 2022-23, higher than 4.10 per cent growth clocked in previous March quarter. Moody's said services and manufacturing sectors have seen robust upswings in economic activity, according to hard and survey data, such as PMI, capacity utilization, mobility, tax filing and collection, business earnings and credit indicators.

However, the report said inflation remains a challenge with the RBI having to balance growth and inflation, while also containing the impact of imported inflation from the year-to-date depreciation of the Indian rupee against the US dollar of around 7 per cent. India's economic growth before the COVID-19 shock had materially slowed because of the impact of corporate-sector deleveraging on business investment. With the deleveraging complete, corporate-sector investment is showing early signs of a pickup, which could provide support to a continued business cycle expansion through several quarters, supported by investment-friendly government policies and the rapid digitization of the economy.