Moody's cuts India's GDP forecast to 7.3%; 2019 expectations unchanged at 7.5%

In a big setback for the country, a Moody`s Investors Service report has cut India's GDP growth forecast to 7.3 per cent in 2018, from previous forecast of 7.5 per cent in the wake of higher oil prices and tighter financial conditions. The report, however, stated that growth expectation for 2019 remains unchanged at 7.5 per cent. "The Indian economy is in cyclical recovery led by both investment and consumption. However, higher oil prices and tighter financial conditions will weigh on the pace of acceleration. We expect GDP growth of about 7.3 per cent in 2018, down from our previous forecast of 7.5 per cent," Moody`s report said.
 
"On the domestic front, growth should benefit from an acceleration in rural consumption, supported by higher minimum support prices and a normal monsoon. The private investment cycle will continue to make a gradual recovery, as twin balance-sheet issues -- impaired assets at banks and corporates -- slowly get addressed through deleveraging and the application of the Insolvency and Bankruptcy Code," the report said. 
 
Discussing about the new Goods and Service Tax regime, Moody`s said that it could weigh on growth somewhat over the next few quarters, which poses some downside risk to its forecast, adding "we expect these issues to moderate over the course of the year." 
 
The report has also termed India and Indonesia as among the worst-hit Asian currencies this year, while looking at their foreign debt exposure and the level of reserves they have to cover that.
 

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Moody’s Investors Service’s external vulnerability index, which is the ratio of short-term debt, maturing long-term debt and non-resident deposits over one year calculated as a proportion of reserves, has put Indonesia at 51 per cent and India at 74 per cent.