Rating agency Moody’s Investors Service has once again lowered India’s economic growth forecast for 2022 to 7.7 per cent.

In May, it downgraded India’s GDP growth estimate for the current calendar year to 8.8 per cent from its earlier projection of 9.1 per cent in March. “Our expectation that India’s real GDP growth will slow from 8.3 per cent in 2021 to 7.7 per cent in 2022 and decelerate further to 5.2 per cent in 2023 assumes that rising interest rates, uneven distribution of monsoons, and slowing global growth will dampen economic momentum on a sequential basis,” the global rating agency said.

“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.”

However, inflation remains a challenge with the Reserve Bank of India having to balance growth and inflation, while also containing the impact of imported inflation from the depreciation of the Indian currency rupee, it added. Although inflation eased slightly to 6.7 per cent in July, it remains above the central bank’s target range of 2-6 per cent for the seventh straight month.

In August, the RBI raised the policy repo rate for a third time by 50 bps to 5.4 per cent. So far, the RBI has raised the repo rate, the interest rate at which the central bank of a country lends money to commercial banks, by 140 points, thereby taking it above pre-pandemic levels.

“The 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,” Moody’s added.

For year 2023, it pegged India’s GDP growth at 5.2 per cent. However, it said a quicker letup in global commodity prices would provide significant upside to growth.