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On Tuesday, rating agency Moody’s maintained India’s economic growth forecast for the calendar year 2024 at 6.8%, while predicting a 6.5% growth for 2025.
Boost from Domestic and Overseas Demand
Moody’s noted that increasing domestic and overseas demand supports GDP growth in emerging markets (EM), although there is significant 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,” the agency stated.
Strong Manufacturing and Infrastructure Spending
In its Global Macro Outlook 2024-25 published in March, Moody’s had raised its forecast for India’s GDP growth in 2024 from 6.1% to 6.8%, citing robust manufacturing activity and infrastructure spending.
“India is likely to remain the fastest-growing among G-20 economies over our forecast horizon,” it said.
Impressive GDP Growth
According to data released by the Ministry of Statistics and Programme Implementation in May, India’s gross domestic product (GDP) for fiscal year 2024 expanded at 8.2%, supported by a 7.8% growth in the January-March 2024 quarter.
These figures were significantly higher than the 6.2% recorded in Q4 of FY23 and 7% in the previous fiscal. Key sectors such as manufacturing, construction, mining, and services were major contributors to this growth.
Inflation Trends and Forecast
Moody’s reported that headline inflation in India has slowed mainly due to lower food prices, though price volatility remains a concern.
“Headline inflation is decreasing in EM Asia and is near or below central bank targets in most countries in that region, although India and Vietnam are reporting stronger wage gains of over 5% year on year,” the report highlighted.
Inflation Expected to Ease
Moody’s expects India’s inflation to ease to 5.2% in 2024 and 4.8% in 2025, down from 5.7% in 2023. The latest data from the statistics ministry showed 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.
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 high due to uneven and below-normal monsoon rains last year, consistently staying above 8% since November.
RBI’s Stance on Interest Rates
Moody’s noted that the Reserve Bank of India (RBI) could “hold for longer” on interest rate cuts. In its second bi-monthly policy meeting for FY25 in June, the Indian central bank maintained the benchmark interest rate (repo rate) at 6.5%.
Interest rates are a tool for the central bank to control inflation. Higher interest rates make borrowing more expensive, reducing demand among banks, financial institutions, and the general public, which can, in turn, bring down consumer spending and inflation.
