Moody's Raises India GDP Growth Forecast To 7.2% For 2024 From 6.8% Earlier

Moody's Ratings raised India's GDP growth projections for 2024 and 2025. It now expects GDP to grow by 7.2% in 2024, up from 6.8% previously and 6.6% growth in 2025, against the earlier estimate of 6.4%, it stated in a release on Thursday.

These forecast changes assume strong broad-based growth, the ratings agency said. "We recognise potentially higher forecasts if the cyclical momentum, especially for private consumption, gains more traction."

The economy expanded 7.8% year-on-year in the first quarter of 2024, despite the persistence of tight monetary policy and demonstrated progress on fiscal consolidation, it said.

Both the industrial and services sectors have recorded strong performances, with the services PMI in particular remaining above 60 since the beginning of the year. Household consumption is poised to grow as headline inflation eases towards the RBI’s target, Moody's said.

Indeed, signs of a revival in rural demand are already emerging on the back of improving prospects for agricultural output amid above-normal rainfall during the monsoon season. Nonfinancial corporate and bank balance sheets are significantly healthier than before the pandemic, and firms are increasingly tapping equity and bond markets to raise capital, it said.

The capex cycle should continue to gain steam amid rising capacity utilisation, upbeat business sentiment and the government’s continued thrust on infrastructure spending, according to the ratings agency. Although manufacturing has gained limited traction over the past decade, underlying improvements in the domestic operating environment and broader global trends improve prospects for India's manufacturing sector going forward.

"From a macroeconomic perspective, the Indian economy is in a sweet spot, with the mix of solid growth and moderating inflation," the note said.

Over the medium- and longer-term, India’s growth prospects depend on how well the country can productively tap its substantial pool of labour, Moody's said. India's population has a median age of 28 years and around two-thirds of it are of working age. While employment generation and skill development are government priorities, the extent to which India reaps a demographic dividend will depend on whether and how well these policies succeed. "Nevertheless, 6%-7% growth should be possible for the economy, sheerly on the basis of present conditions."