International agency Moody’s Investor Services, on Wednesday, cut India’s growth forecast to 7.3 per cent for calendar year 2018. However, it has maintained the estimate for 2019 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. Our growth expectation for 2019 remains unchanged at 7.5 per cent,” the agency said in its report on ‘Global Macro Outlook: 2018-19 (May 2018 Update)’.

As India imports over two-thirds of its crude requirement, any surge in crude prices has the potential to upset growth projection. According to a recent research report by SBI it is estimated that $10/bbl increase in oil price will increase import bill by around $8 billion. This, in turn, will decrease GDP by 16 bps, increase fiscal deficit by 8 bps, CAD by 27 bps GDP and inflation by 30 bps. The report, however, put a disclaimer by saying that these are model estimates and actual could be much different from them. For example, since June 2017, oil price has increased by $23/bbl, but the direct and indirect impact on CPI has only been 26 bps.

Outlook for 2019

Meanwhile, there is good news for 2019. “Our growth expectation for 2019 remains unchanged at 7.5 per cent,” the agency said. While adding that on the domestic front, growth should benefit from acceleration in rural consumption, supported by higher minimum support prices and a normal monsoon. It believes that 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. “Ongoing transition to the new Goods and Service Tax regime could also weigh on growth somewhat over the next few quarters, which pose some downside risk to our forecast. However, we expect these issues to moderate over the course of the year,” the agency said.

Like most of the international agency, Moody’s follow a system of calendar year (January-December) for growth projection while the Indian Government follows the system of ‘T+1’ i.e. fiscal year spread over two calendar years starting from April 1 (of first year) and ending on March 31 (of second year).

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