Global credit rating agency Moody’s Investors Service has raised India’s growth forecast to 6.7% for financial year 2023-’24 on account of strong economic growth in the first quarter (April-June) against 5.5% pegged earlier.

“Strong services expansion and capital expenditures propelled India’s 7.8% real GDP growth in the second quarter from a year ago,” said Moody’s in its Global Macro Outlook, reported CNBC. “We have accordingly raised our 2023 calendar year growth forecast for India from 5.5% to 6.7%.”

The agency, however, has lowered the 2023-’24 Gross Domestic Product forecast to 6.1% from 6.5% projected earlier as the second quarter outperformance has created a high base for the current financial year.

Moody’s said that the robust underlying economic momentum may result in upside risk to India’s economic growth performance.

There is also a possibility of food commodity prices shooting up if the rainfall between June and October remains below normal, the agency said. This comes against the backdrop of India seeing a 36% deficit in rains in August, according to the India Meteorological Department. It has estimated a 9% rain deficiency across the country.

“The Reserve Bank of India’s monetary policy committee has left the repo rate unchanged for a third time this month,” noted Moody’s. “The recent uptick in food price inflation and uncertain El Nino-related weather conditions will delay monetary policy easing consideration to early next year.”

The El Nino phenomenon involves the warming of ocean surface temperatures in the eastern and central Pacific. It has been linked to crop damage, fires and flash floods.

Meanwhile, data released by the National Statistical Office on Thursday showed that India’s GDP for the first quarter rose to a four-quarter high of 7.8%. The growth rate stood at 6.1% in the fourth quarter (January-March) of the previous financial year.

The uptick is being attributed to a rise in agriculture and services especially financial, real estate and professional services and contact-intensive services of trade, hotel and transportation.

Last month, the RBI had projected the growth rate to touch 8% in the first quarter, as against a 6.1% growth in January-March and a 13.1% growth in April-June 2022.

Moody’s outlook on Indian economy

In a report released in August, Moody’s had maintained a stable outlook for the country and affirmed a “Baa3” rating, despite Indian officials pitching for an upgrade.

A “Baa3” rating is the lowest investment grade ranking as per Moody’s rating scale.

The agency had said that India’s economy is likely to continue to grow rapidly by international standards and would outpace all other G20 economies through at least the next two years.

“High GDP growth will contribute to gradually rising income levels and overall economic resilience,” it had said. “In turn, this will support gradual fiscal consolidation and government debt stabilization, albeit at high levels.”

The agency, however, had listed rising sectarian tensions – including in particular the ongoing violence in Manipur – among risk factors for the country.

Moody’s, in its report, had expressed concern about the curtailment of civil society and political dissent, and said this led to a “weaker assessment” of political risk and the quality of institutions.