Moody's says Indian economy in 'sweet spot,' predicts 2024 growth of 7.2%

India's real GDP expanded 6.7 per cent year-on-year in the June quarter of 2024, driven by a revival in household consumption, robust investment, and strong manufacturing activity

The Indian economy is in a sweet spot, with a mix of solid growth and moderating inflation, Moody’s Ratings said in its latest global macro outlook published on Friday.

 

The rating agency has projected 7.2 per cent growth for India for 2024. It is followed by 6.6 per cent and 6.5 per cent growth for 2025 and 2026, respectively.

 

India's real GDP expanded 6.7 per cent year-on-year (Y-o-Y) in the June quarter of 2024. It was driven by a revival in household consumption, robust investment and strong manufacturing activity.

 

The report said high-frequency indicators – including expanding manufacturing and services purchasing managers' index (PMI), robust credit growth and consumer optimism – signal steady economic momentum in the September quarter.

 

 

“Household consumption is poised to grow, fuelled by increased spending during the ongoing festival season and a sustained pickup in rural demand on the back of an improved agricultural outlook. Additionally, rising capacity utilisation, upbeat business sentiment and the government's continued thrust on infrastructure spending should support private investment,” said the report.

 

Moody’s report also added that sound economic fundamentals, including healthy corporate and bank balance sheets, a stronger external position and ample foreign exchange reserves, also bode well for the growth outlook of India. 

 

Sporadic food price pressures continue to inject volatility in the disinflation trajectory.

 

Headline inflation breached the upper bound of the Reserve Bank of India’s (RBI’s) tolerance band of 2-6 per cent for the first time in more than a year in October, accelerating to 6.2 per cent amid a sharp jump in vegetable prices.

 

“Despite the near-term uptick, inflation should moderate toward the RBI’s target in the coming months as food prices ease amid higher sowing and adequate food grain buffer stocks. Even so, potential risks to inflation from heightened geopolitical tensions and extreme weather events underscore the RBI’s cautious approach to policy easing,” added the report.

 

The report also highlighted that increasing trade protectionism together with a push in several large economies to strengthen their domestic industries make external demand a less reliable source of growth.

 

“Most G-20 economies will experience steady growth and continue to benefit from policy easing and supportive commodity prices. However, post-election changes in US domestic and international policies could potentially accelerate global economic fragmentation, complicating ongoing stabilisation,” the report said.

 

Moody’s said economies with robust domestic drivers of growth will experience greater resilience and stability.

 

“Meanwhile, several G-20 economies, including the US, Europe, India, Brazil and Indonesia are exploring industrial policies in an effort to improve their economic resilience, which could potentially alter the structures of their economies,” it added.

 

The report also noted that supply chain relocation, investment from multinational companies and Chinese domestic manufacturing firms also create opportunities for India, Mexico and several Southeast Asian countries.