On Monday, rating agency Moody’s increased its projection for India’s GDP growth in 2024. The upward revision reflects optimism both globally and domestically regarding the country’s economy, supported by strong manufacturing activity and infrastructure spending.
In its Global Macro Outlook 2024-25, the rating agency stated, ‘India’s economy has performed well, and stronger-than-expected data in 2023 has led us to increase our 2024 growth estimate to 6.8% from 6.1%.
“India is projected to maintain its position as the fastest-growing among G-20 economies over our forecast horizon,” it added.
The Indian economy experienced a significant surge in the December quarter (the third quarter of FY24) with an unexpected growth of 8.4%, defying concerns of slowdown as the manufacturing, electricity, and construction sectors demonstrated robust performance.
The statistics ministry has revised its GDP growth estimate for FY24 to 7.6% in its second revised estimate, up from 7.3% in its initial advance forecast.
The Reserve Bank of India (RBI) has forecasted a GDP growth of 7% for FY24, while the International Monetary Fund (IMF) predicts a growth of 6.7%.
“We anticipate that as global headwinds subside, the Indian economy will comfortably achieve a real GDP growth rate of 6.0%-7.0%. Therefore, we forecast a growth rate of around 6.8% in calendar year 2024, followed by 6.4% in 2025,” stated Moody’s.
Moody’s attributed the robust growth in 2023 to government capital spending and strong manufacturing activity. It expects policy continuity post the general election and a continued emphasis on infrastructure development.
While private industrial capital spending in India has been sluggish, Moody’s anticipates an uptick due to ongoing benefits from supply chain diversification and investor response to the government’s production-linked incentive (PLI) scheme aimed at boosting key manufacturing industries.
“Moreover, increasing capacity utilization, strong credit growth, and positive business sentiment indicate an improving outlook for private investment,” noted the rating agency.
“High-frequency indicators indicate that the strong momentum observed in the economy during Q3 and Q4 has persisted into the first quarter of this year,” it continued, referring to the January-March period as the first quarter.
According to the RBI, the total cost of private corporate projects sanctioned by major banks and financial institutions rose by 23% annually during the April-December period compared to the same period a year earlier, suggesting that the private capital expenditure cycle is gaining momentum.
Moody’s anticipates that India’s urban consumption demand will remain robust, supported by strong goods and services tax collections, increasing auto sales, consumer confidence, and double-digit credit growth. Additionally, expanding manufacturing and services PMIs are expected to contribute to economic momentum.
In January, the Indian economy expanded at a four-month high, and this growth momentum continued into February, with both the manufacturing and services sectors experiencing acceleration.
February saw the services sector reaching a seven-month high in growth, while the manufacturing sector achieved a five-month high, solidifying India’s position as one of the fastest-growing major economies.
The HSBC Flash India Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 61.5 in February from a revised reading of 61.2 in January—significantly above the 50-point threshold that separates expansion from contraction.
Additionally, India’s headline inflation eased to 5.1% in January from 5.7% in the previous month. Core inflation also moderated, dropping to 3.5% from 3.8%.
Moody’s commented on the Reserve Bank of India’s (RBI) decision to maintain the repo rate at 6.5% in February, a level unchanged since March 2023. Considering the robust growth dynamics and inflation above the 4.0% target, Moody’s does not anticipate any policy easing in the near future.