Amid concerns about urban demand moderation and many high-frequency indicators signalling a slowdown, Moody’s Ratings on Friday retained its 7.2% economic growth projection for India for calendar year 2024, citing likely improvement in household consumption, a sustained pick-up in rural demand, rising capacity utilisation, and the government’s continued thrust on infrastructure spending.
“Indeed, from a macroeconomic perspective, the Indian economy is in a sweet spot, with the mix of solid growth and moderating inflation. We forecast a 7.2% growth for calendar year 2024, followed by 6.6% in 2025 and 6.5% in 2026,” Moody’s said in its Global Macro Outlook on Friday. The Indian economy had grown by 7.7% in 2023.
Despite a near-term uptick, inflation should moderate towards the Reserve Bank of India’s (RBI) target in the coming months as food prices ease amid higher sowing and adequate foodgrain buffer stocks, the agency said. Potential risks to inflation from heightened geopolitical tensions and extreme weather events underscore the RBI’s cautious approach to policy easing.
In October, the RBI stuck to its forecast that the Indian economy will expand 7.2% in the fiscal ending March 2025 despite recent evidence showing activity starting to taper off. The RBI’s outlook is far more optimistic than the 6.5-7% growth projected by the finance ministry economists.
India’s rural demand continues to improve, but urban demand appears to be moderating due to softening consumer sentiment, the ministry said in the September monthly economic review.
India’s GDP growth rate for the January-March quarter of 2024 came in at a solid 7.8% and at 6.7% in Q2, driven by a revival in household consumption, robust investment and strong manufacturing activity.
“High-frequency indicators–including expanding manufacturing and services PMIs, robust credit growth and consumer optimism–signal steady economic momentum in Q3,” Moody’s said.
Household consumption is poised to grow, fuelled by increased spending during the ongoing festive season and a sustained pick-up in rural demand on the back of an improved agricultural outlook, it said. Additionally, rising capacity utilisation, upbeat business sentiment, and the government’s continued thrust on infrastructure spending should support private investment.
Sound economic fundamentals, including healthy corporate and bank balance sheets, a stronger external position and ample foreign exchange reserves also bode well for the growth outlook, according to Moody’s.
Sporadic food price pressures continue to inject volatility in the disinflation trajectory. Headline inflation breached the upper bound of the RBI’s 4% (+/-2%) tolerance band for the first time in more than a year in October, accelerating to 6.2% amid a sharp jump in vegetable prices.
Despite the near-term uptick, inflation should moderate toward the RBI’s target in the coming months as food prices ease amid higher sowing and adequate food grain buffer stocks.
Although the central bank shifted its monetary policy stance to neutral while keeping the repo rate steady at 6.5% in October, it will likely retain relatively tight monetary policy settings into the next year, given the fairly healthy growth dynamics and inflation risks, it added.