Moody's has predicted a slippage for India on the fiscal front. | Will India be able to beat China in terms of economic growth?

 

Moody's has predicted a slippage for India on the fiscal front:

Moody's has spoiled the mood of the country. Where good news about the country's economy had knocked from all sides, now the rating agency Moody's has given such a statement that everyone's heartbeat is going to stop. What did Moody say like this? Everything is told to you in the report.

Moody's says that the government's revenue in the current financial year may be less than expected, and the general government debt in the last financial year has been 81.8% of GDP, which is quite high. This can pose a trouble to the country's economy. The agency estimates that the Indian economy will grow at a rate of 6 to 6.3% in the first quarter of the current financial year 2023-24.

Along with this, Moody's has also expressed the possibility of slippage on the financial front due to the government's profit being lower than anticipated. Gene Fang, associate managing director of Moody's Investor Services, said in an interview that India's general government debt for 2022- 23 has been at a much-advanced position of 81.8% of GDP, while the debt capacity is very low.

Gene Fang said that India has the potential to achieve better growth and its strength lies in the stable domestic financial base and strong external position for government debt. He said that with inflation coming down, we expect demand from households to improve. Gene Fang said India's strength with a sovereign rating of BAA3 is its large and diversified economy, which has the potential to achieve high growth rates.

This can be gauged from the high growth projections between weak global economic conditions. Fang said the government has largely achieved its fiscal targets in the last two years, allaying concerns over fiscal policy. The government's fiscal deficit is to come down to 6.4% of GDP in 2022-23 from 6.7% in 2021-22.

The difference between revenue and expenditure of the government is called fiscal deficit. The target of fiscal deficit has been kept at 5.9% in the current financial year. Fang said as the government balances its commitment to long-term fiscal stability against high inflation and weak global demand and its more immediate priority to support the economy ahead of general elections due in May 2024.

In such a situation, they feel that there is a possibility of slippage on the fiscal front. Moody's estimates that the growth rate of the Indian economy will be 6.1% in the entire 2023-24 financial year, while it will reach 6.3% in the next financial year. On a calendar year basis, Moody's expects growth to remain at 5.5% in 2023, rising to 6.5% in 2024.

Last week, the Reserve Bank of India in its monetary policy review estimated the growth rate to be at 6.5% in the current financial year. The Reserve Bank estimates that the growth rate in the first quarter of the current financial year will be 8%. It will be 6.5% in the second quarter, 6% in the third, and 5.7% in the fourth quarter.

Gene Fang said that the government's general government debt has been 81.8% of GDP in 2022-23, which is quite high. is high Its average for places with a BAA rating is 56%.

Will India be able to beat China in terms of economic growth?

China, which has been the fastest-growing country in the world for decades, is now facing its toughest challenge. In terms of growth, China is not being challenged by America, Japan, or any country in Europe, but its neighboring country India is giving this challenge to China. 

From worldwide business supply chain manufacturing to mobile phone and chip making, India is determined to beat China. The world's trust in China has weakened since the Covid-19 period, and everyone is looking at India as an alternative. 

The business environment in the country has also improved due to the policies of government to increase business, and this is the reason that when the whole world is in a period of slowness and difficulty, then India is performing better than expected on growth.

Now Organization for Economic Co-operation and Development i.e. OECD has also made a big claim about India in its report. OECD has said in its recent report that India will leave China far behind in growth. That is, not only in 2023 but also in 2024, it will achieve higher growth than China.

In the Global Economic Outlook report, the OECD has predicted that India, China, and Indonesia will be the largest growth countries in 2023 and 2024. The OECD has predicted that India's growth will be 6% in 2023, while China's growth will be 5.4% and Indonesia's 4.7%.

However, the OECD has said that India's economic growth was higher than expected in 2022-23 on the back of strong firm sector production and government spending. But in the current financial year, India's growth will be close to 6% due to sluggish global demand and high-interest rates. 

However, the OECD has said that in the second half of the current fiscal, slowing inflation and easing monetary policy will revive general household spending and this will accelerate India's growth to 7% in 2024-25. However, the OECD's 6% forecast for the current fiscal is lower than the Reserve Bank's forecast of 6.5%. 

On the other hand, the International Monetary Fund (IMF) has projected India's growth to be 5.9%  this year, while the World Bank has said that India's growth could be 6.3%  in 2023-24. The OECD has said that falling energy prices in China, a fall in inflation, and the reopening of the economy will lead to a recovery in China's growth.

Although this recovery has been weak compared to the previous standards. On the other hand, OECD has expressed great hope regarding India. The OECD has said that India's full-year growth momentum in 2022 is expected to continue this year as well. The agency has said that the Reserve Bank may cut interest rates in the middle of 2024. 

India's growth in 2022-23 has been 7.2%  and it remains much better than expected. Along with this, macro-economic figures like GST, car sales, and manufacturing PMI have also been good. In such a situation, agencies around the world are bullish about India's growth. 

Now the OECD in its report has projected India's growth to be higher than other major economies of the world including China. What do you think? Please tell us by the comment.