Moody’s has raised its real GDP growth projections for India on Thursday expecting a robust 7.2% growth in 2024 (up from 6.8%) and 6.6% in 2025 (up from 6.4%). This revision reflects strong, broad-based growth, driven by resilient private consumption and improved business conditions.
The Indian economy grew 7.8% year-over-year in the first quarter of 2024, despite tight monetary policy and efforts toward fiscal consolidation, Moody’s said in a report. Both industrial and services sectors are thriving, with services PMI staying above 60 since early 2024, Moody’s added in the report.
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, Moody’s said.
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.
For now, the outlook remains optimistic, driven by favorable economic conditions and strategic reforms, the report said.
Healthy balance sheets
Corporate and bank balance sheets are healthier, with increased capital raising through equity and bonds. Private capital expenditure is projected to surge by 54% this financial year, fueled by rising capacity utilization, positive business sentiment, and government infrastructure investments, Moody’s said. Though manufacturing has struggled in recent years, improving domestic conditions and global trends suggest a brighter future for India’s manufacturing sector, it added.
Digitalization: A pivot
Digitalization is also playing a pivotal role, driven by government initiatives like the United Payments Interface (UPI), which now accounts for nearly 80% of digital payments, accelerating financial inclusion and formalization of the economy, Moody’s said. Meanwhile, India’s external position has strengthened, with a current account surplus recorded for the first time in ten quarters, thanks to robust services exports and remittance inflows. Additionally, ample foreign reserves give the RBI more room to manage rupee volatility.
Fitch affirms rating
Fitch also affirmed India’s long-term foreign currency issuer rating at ‘BBB-‘ with a stable outlook, citing a strong medium-term growth outlook.The agency said the growth outlook will continue to drive improvement in structural aspects of its credit profile, including India’s share of GDP in the global economy as well as its solid external finance position.
Strengthening fiscal credibility from meeting deficit targets, along with enhanced transparency and buoyant revenues have increased the likelihood that government debt can follow a modest downward trend in the medium term, it added.
