Moody’s Cuts India’s 2015 GDP Growth Forecast To 7% Amid Below-Normal Monsoon

Moody’s Investors Service lowered India’s economic growth forecast to 7 percent for 2015, from its previous estimate of 7.5 percent, as it believes that below normal monsoon rainfall will offset higher government spending and cautioned that further risks to growth stems from a slow pace of reforms.

“We have revised our GDP growth forecast down to around 7 percent, in light of a drier than average monsoon although rainfall was not as low as feared at the start of the season,” Moody’s Investors Service said in its ‘Global Macro Outlook for 2015-16‘.

Moody’s said that India’s growth outlook is resilient beyond short-term monsoon effects, and retained a 7.5 percent growth forecast for 2016.

“One main risk to our forecast is that the pace of reforms slows significantly as consensus behind the need for reform weakens once the least controversial aspects of the government?s plan have been implemented,” Moody’s said.

India, a net importer of commodities, benefits from the fall in commodity prices over the past year and the country is “little affected” by demand from China and more generally slower global trade growth, Moody’s said.

According to the rating agency, India’s economic activity will continue to strengthen on the back of a gradual implementation of reforms that foster domestic and foreign investment.

Consumption growth will continue to be supported by large income gains as inflation has fallen to relatively low levels by the country’s previous standards and favorable demographics, Moody’s said.

“Barring a large shock to commodity prices or food inflation, we think that the Central Bank’s inflation targets are achievable,” it added.

“Maintaining inflation at lower levels than in the past will support real incomes and spending. As long as the Central Bank’s objective is credible, it will also foster investment by providing more visibility about future revenue growth and margins,” Moody’s said.

Moody’s added that growth in 2015-16 will also be supported by an accommodative fiscal policy stance and the budget focuses on sustained economic growth as a driver of narrower deficits.

The International Monetary Fund (IMF) estimates that India’s economy will grow 7.5 percent in the 12 months through March 2016, versus the Indian government’s forecast of 8 percent to 8.5 percent for the same period. The Moody’s forecast is for the calendar year.