Moody's raises India's 2023 GDP growth forecast to 6.7%

Given the robust underlying economic momentum, the agency also recognises further upside risk to India’s economic growth performance.

India's monsoon season, which runs from June to October, could also see below-average rainfall, resulting in higher food prices, Moody's said. "So far, as of August 29, the India Meteorological Department has estimated a 9 percent rain deficiency across the country. If El Niño this year proves to be particularly strong in the second half of 2023 and early 2024, agricultural commodity prices could shoot up."

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

The agency further said that domestic demand in India remains buoyant, and as long as core inflation remains relatively stable, rate hikes are also unlikely.

Meanwhile, India's GDP for the first quarter (April-June) of the ongoing financial year accelerated to 7.8 percent, according to data released by the Ministry of Statistics and Programme Implementation on August 31.

The GDP growth stood at 6.1 percent in the fourth quarter of the previous financial year.

While the number is lower than the 13.5 percent GDP growth in the first quarter of the previous financial year, India’s economy has been growing at a steady pace and is likely to improve further during the upcoming festive season.

Though several economists have expressed concern over the overall impact of inflation and erratic weather on economic growth, India’s manufacturing, services and export sectors have witnessed strong growth, in addition to robust tax collection.

Union Finance Minister Nirmala Sitharaman, in a recent interview, said that India's economic growth will be robust at least till the end of 2023.