Moody's upgrades India's GDP forecast to 7.2% for 2024 and 6.6% for 2025

The New York-based rating agency noted that India's growth forecasts could be higher if the cyclical momentum, particularly in private consumption, continues to strengthen, reported the Mint.

The Indian economy, supported by strong domestic demand, increased investment, and robust services activity, showed solid growth in the previous fiscal year (FY24) and is on track to exceed expectations in the current one (FY25).

"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.

According to estimates from the National Statistical Office (NSO), India’s GDP grew by 8.2% in FY24, outpacing the 7% growth recorded in FY23.

The International Monetary Fund (IMF) raised its forecast for India’s GDP growth in FY25 by 20 basis points to 7% in July, while the World Bank revised its growth estimate for the current financial year upward by 20 basis points to 6.6% in June, citing strong growth momentum.

Growth has been driven by the strong performance of the industrial and services sectors.

The services sector's Purchasing Managers Index (PMI) has remained above 60 since January 2024.

The HSBC final India Manufacturing PMI, compiled by S&P Global, was 58.1 in July, following readings of 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, maintaining above 50 — the threshold between expansion and contraction — for 35 consecutive months.

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

Food inflation, which has been a persistent challenge, dropped to 5.42% in July, the lowest since June 2023.

The Reserve Bank of India (RBI) has kept the benchmark repo rate steady at 6.5% since February 2023 and projects real GDP growth at 7.2% and CPI inflation at 4.5% for FY25.

In its report, Moody's Ratings highlighted that the Indian economy is in a favourable position, with a combination of strong growth and moderating inflation.

"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.