New Delhi: Rating agency Moody's on Tuesday kept India's economic growth forecast for calendar year 2024 unchanged at 6.8%, while predicting a 6.5% growth for 2025.
Moody's Rating said increasing domestic and overseas demand supports GDP growth in emerging markets (EM), with wide variation by country.
"We have revised our aggregate EM forecast to 3.9% for 2024 and 2025, up slightly from our previous forecast, to reflect faster-than-expected growth in some of the largest EM economies in the first half of this year," it added.
In its Global Macro Outlook 2024-25 published in March, Moody's raised its forecast for India's GDP growth in 2024 from 6.1% to 6.8%, reflecting both global and domestic optimism in the country's economy on the back of robust manufacturing activity and infrastructure spending.
"India is likely to remain the fastest-growing among G-20 economies over our forecast horizon," it said.
Gross domestic product (GDP) for fiscal year 2024 expanded at 8.2%, ably supported by January-March 2024 quarter growth of 7.8%, according to data released by the Ministry of Statistics and Programme Implementation in May. Both figures were significantly higher than the 6.2% (revised) recorded in Q4 of FY23 and 7% registered in the previous fiscal. The push for GDP growth came from key sectors including manufacturing, construction, mining and services.
Moody's said headline inflation has slowed mainly because of lower food prices in India, but price volatility remains an issue.
"Headline inflation is decreasing in EM Asia and is near or below central bank targets in most countries in that region alongside generally tepid wage trends, although India and Vietnam are reporting stronger wage gains of over 5% year on year," it added.
Moody's expects inflation in India to ease to 5.2% in 2024 and 4.8% in 2025 from 5.7% in 2023.
According to the latest data from the statistics ministry, retail inflation based on the consumer price index (CPI) eased to 4.75% in May from 4.83% in April, the slowest pace in a year, aided by a more moderate rise in prices of food items such as meat, fish, milk products, vegetables, and spices. Inflation has stayed below 5% since March.
However, food inflation, which accounts for almost 40% of the overall consumer price basket, rose 8.69% year-on-year in May, compared with 8.70% in April. Food prices have remained elevated for over a year due to the uneven and below-normal monsoon rains last year. Food inflation has consistently stayed above 8% since November.
The Reserve Bank of India could 'hold for longer' on interest rate cuts, Moody's said in its latest report. During its second bi-monthly policy meeting for FY25 in June, the Indian central bank maintained the benchmark interest rate (repo rate) at 6.5%.
RBI governor Shaktikanta Das noted the "last mile journey towards a 4% inflation target remains sticky," indicating that the central bank would wait for inflation to stabilise at about 4% before taking policy action.
Interest rates are an instrument for the central bank to control inflation. A higher interest rate regime makes borrowing costs more expensive, reducing demand among banks, financial institutions, and the general public, which can, in turn, bring down consumer spending and inflation.
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