Moody's Ratings raised India's GDP growth forecasts for 2024 and 2025 to 7.2% and 6.6%, respectively, citing robust broad-based growth as a major driver. According to the ratings agency, GDP might exceed expectations if private consumption finds traction.
Moody's Ratings stated that the Indian economy is now benefiting from a combination of steady growth and moderate inflation. This evaluation was included in their August update for the Global Macro Outlook 2024-25. Moody's says: "From a macroeconomic perspective, the Indian economy is in a sweet spot, with the mix of solid growth and moderating inflation."
India's GDP growth is expected to reach 7.2% in 2024, up significantly from the previous forecast of 6.8%. Moody's revised its 2025 outlook to 6.6%, up from 6.4% before. Moody's remarked, "We have upped our real GDP growth predictions for the Indian economy in 2024 and 2025...These predicted revisions presume robust broad-based growth."
The Indian economy expanded by 7.8% year on year in the first quarter of 2024, despite the constraints faced by restrictive monetary policy and ongoing fiscal austerity measures. Moody's said that signs of a rural demand rebound are developing, aided by improved agricultural production forecasts as a result of above-normal rainfall during the monsoon season.
Bank and non-financial firm balance balances are significantly better than before the outbreak. Companies are increasingly resorting to the stock and bond markets to obtain financing. Additionally, a recent RBI study predicts a 54% increase in private capital spending for the current fiscal year.
According to Moody's: "The capex cycle should continue to gain steam amid rising capacity utilization, upbeat business sentiment and the government's continued thrust on infrastructure spending."
The fast and extensive digitization of the economy is driving these growth trends. This is fueled by government investments in digital public infrastructure, greater telecom and internet penetration, and reduced data use prices.
India's external situation has also improved in recent years, with a major decrease in its current account deficit. The quarter ended March 2024 with a slight surplus, the first in ten quarters, owing mostly to healthy service exports and high remittance inflows.
Furthermore, India's sizable foreign currency reserves acquired over the last decade give the Reserve Bank of India (RBI) the ability to intervene in forex markets to reduce rupee volatility during crises. According to Moody's, "Over the medium and long term, India's economic prospects are dependent on how effectively the country can efficiently utilize its huge pool of labor... Nonetheless, based on current conditions, the economy should be able to grow by 6-7 percent.
The median age of India is 28 years, with almost two-thirds of the population being of working age. While creating jobs and developing skills remain government priorities, the efficiency of these measures will determine how much India can profit from its demographic dividend.
