Moody's raises India growth forecast to 6.8% on stronger economic data

Global rating agency Moody's on Monday raised India's growth forecast for 2024 calendar year to 6.8 per cent, from 6.1 per cent estimated earlier, on the back of 'stronger-than-expected' economic data of 2023 and fading global economic headwinds.

India's real GDP expanded 8.4 per cent year-over-year in the fourth quarter of calendar year 2023, resulting in a 7.7 per cent growth for full-year 2023.

Capital spending by the government and strong manufacturing activity have meaningfully contributed to the robust growth outcomes in 2023, Moody's Investors Service said.

With global headwinds fading, the Indian economy should be able to comfortably register 6-7 per cent real GDP growth, it added.

"India's economy has performed well and stronger-than-expected data in 2023 has caused us to raise our 2024 growth estimate to 6.8 per cent from 6.1 per cent. India is likely to remain the fastest growing among G-20 economies over our forecast horizon," Moody's said in its Global Macroeconomic Outlook for 2024.

For 2025, the GDP growth is estimated at 6.4 per cent.

The agency said high-frequency indicators show that the economy's strong September and December quarter momentum carried into the March quarter of 2024.

"Robust goods and services tax collections, rising auto sales, consumer optimism and double-digit credit growth suggest urban consumption demand remains resilient. On the supply side, expanding manufacturing and services PMIs add to evidence of solid economic momentum," Moody's said.

This year's interim budget targets capital expenditure allocation of Rs 11.1 lakh crore or 3.4 per cent of GDP in 2024-25 (fiscal year 2025), 16.9 per cent above the 2023-24 estimates.

"We expect policy continuity after the general election and continued focus on infrastructure development," Moody's said.

The agency said while private industrial capital spending has been slow to pick up, it is expected to pick up with ongoing supply chain diversification benefits and investors' response to the government's Production Linked Incentive scheme to boost key targeted manufacturing industries.

The year 2024 is an election year for several G-20 countries including India, Indonesia, Mexico, South Africa (Ba2 stable), the UK and the US.

Implications of elections can go beyond borders and economic and public policy in today's increasingly fractious world, it said.

"Leaders elected this year will influence domestic and foreign policies for the next four to five years. Businesses are accordingly responding to evolving geopolitical dynamics by reorganizing supply chains and capital sources," Moody's said.

It said geopolitical realities will be influencing international trade flows, capital flows, international migration trends and international organizations in the years to come. Domestically, industrial and trade policies of several countries are intertwined with foreign policy.