Moody's raises India’s 2024 GDP growth forecast to 7.2% in 2024, 6.8% in 2025

Ratings agency Moody's has raised India's GDP growth projections for FY2025 to 7.2% in 2024 from 6.8% previously and 6.6% growth in 2025, against the earlier estimate of 6. 4%. In July, Moody's kept India's economic growth forecast for calendar year 2024 unchanged at 6.8%, while predicting a 6.5% growth for 2025.

In August, Moody's said forecast changes assume strong broad-based growth. "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. 

It noted that 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 noted. 

"As inflation eases towards the RBI's target, household consumption is set to rise, especially with rural demand showing signs of revival amid a strong monsoon," the report said.

India finds itself in a macroeconomic "sweet spot" with solid growth and moderating inflation, which fell to 3.5% in July from 5.1% in June.

Over the long term, sustaining 6%-7% growth will depend on effectively utilising its young workforce, the report added. With a median age of 28 and two-thirds of the population of working age, the country has a unique demographic advantage that could power its growth—provided employment generation and skill development policies succeed.

It further said 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 capital expenditure (capex) cycle is expected to continue expanding as capacity utilisation rises, business sentiment improves, and the government maintains its emphasis on infrastructure investment, as per the ratings agency. Despite manufacturing experiencing only modest growth in the last ten years, positive changes in the domestic operational climate and global trends offer promising opportunities for the future of India's manufacturing industry.