Moody’s Ratings upgrades India’s GDP growth forecast to 7.2% in 2024 and 6.6% in 2025

New Delhi: Moody's on Thursday revised India's economic growth forecast upwards to 7.2% for 2024 and to 6.6% for 2025 from its earlier estimates of 6.8% and 6.4%, respectively, citing strong broad-based growth.

The New York-based rating company said it recognised potentially higher growth forecasts for India if the cyclical momentum, especially for private consumption, gains more traction.

"The (Indian) economy expanded 7.8% year-over-year in the first quarter of 2024 despite the persistence of tight monetary policy and demonstrated progress on fiscal consolidation. 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," Moody’s said in a report titled 'Global Macro Outlook 2024-25 (August 2024 Update).'

"Household consumption is poised to grow as headline inflation eases toward the RBI’s target. 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," it added.

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The Indian economy, buoyed by healthy domestic demand, a surge in investment and robust services activity, reported strong economic growth during the previous fiscal (FY24) and is on track to exceed expectations during the ongoing one (FY25).

India’s GDP expanded 8.2% in FY24, at a faster pace than the 7% reported in FY23, according to estimates released by the National Statistical Office (NSO).

The International Monetary Fund upgraded India's GDP growth in the ongoing fiscal (FY25) by 20 basis points to 7% in July. The World Bank in June upwardly revised the country's growth forecast for the current financial year by 20 basis points to 6.6%, citing strong growth momentum for the South Asian nation.

Manufacturing, services

Growth has been driven by strong performance in the industrial and services sectors, with the services Purchasing Managers Index (PMI) remaining above the 60 mark since the beginning of the calendar year (January 2024).

The HSBC final India Manufacturing PMI, compiled by S&P Global, stood at 58.1 in July, after clocking 58.3 in June, 57.5 in May, and 58.8 in April. 

The HSBC India Services PMI stood at 60.3 in July and 60.5 in June. The index had reached a six-month high of 61.8 in January. The Services PMI reading has remained above the 50 mark, which separates expansion from contraction, for 35 consecutive months.

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Meanwhile, retail inflation based on the Consumer Price Index (CPI) was 3.54% in July, the lowest in 59 months, according to the latest data from the Ministry of Statistics and Programme Implementation.

The rise in food prices, a persistent challenge, at 5.42% in July was the lowest since June 2023, when it was 4.55%. Food inflation was 9.36% in June, after 8.69% in May and 8.70% in April.

The Reserve Bank of India (RBI) has left the benchmark repo rate unchanged at 6.5% since February 2023. The RBI expects real GDP growth for FY25 at 7.2% and CPI inflation at 4.5% for the ongoing fiscal year.

In its report, Moody's Ratings said the Indian economy is in a sweet spot, with a mix of solid growth and moderating inflation.

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"Although driven by favourable base effects, headline inflation fell below the RBI’s median target of 4% to 3.5% in July, down from 5.1% in June. Over the medium- and longer term, India’s growth prospects depend on how well the country can productively tap its substantial pool of labour," it 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," it said, adding that the Indian economy can maintain 6%-7% annual growth sheerly on the present conditions.