Moody's Lifts India’s 2024 GDP Growth Forecast On Strong Demand Momentum

Moody's Investors Service raised India’s gross domestic product (GDP) growth forecast for 2024 to 6.8% from 6.1%, driven by strong demand momentum and stronger-than-expected data in 2023.

India's real GDP expanded 8.4% year-over-year in the fourth quarter of 2023, resulting in a 7.7% growth for full-year 2023, Moody's said in its Global Macro Outlook 2024-25.

“We believe that with global headwinds fading, the Indian economy should be able to comfortably register 6%-7% real GDP growth and we, therefore, forecast around 6.8% growth in calendar year 2024, followed by 6.4% in 2025,” it added.

The rating agency said India is likely to remain the fastest growing among G-20 economies over its forecast horizon.

Capital Spending

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

This year's interim budget targets capital expenditure allocation of 11.1 trillion rupees ($134 billion) or 3.4% of GDP in 2024-25 (FY25), 16.9% above the 2023-24 estimates, it added.

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

The rating agency said private industrial capital spending has been slow to pick up, but 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.

Moody's noted that according to the Reserve Bank of India (RBI), the total cost of private corporate projects sanctioned by major banks and financial institutions was up 23% during April-December 2023, compared with the same period a year ago, suggesting that the private capex cycle is gaining steam.

In addition, rising capacity utilization, robust credit growth and upbeat business sentiment point to an improving outlook for private investment, it said.

Indicators & Policy Easing

Moody's said high-frequency indicators show that the economy's strong third quarter and fourth quarter momentum carried into the first quarter of this year.

Robust goods and services tax collections, rising auto sales, consumer optimism and double-digit credit growth suggest urban consumption demand remains resilient, the rating agency said.

On the supply side, expanding manufacturing and services PMIs add to evidence of solid economic momentum, it added.

Moody's said headline inflation in January eased to 5.1% from 5.7% in the month prior, while core inflation also moderated to 3.5% from 3.8% in December.

“Given the solid growth dynamics and inflation above the 4% target, we do not expect policy easing any time soon,” it noted.

The RBI held the repo rate steady at 6.5% in February, the same level since March 2023, Moody's said.

$1 = 82.8617 Indian rupees

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