Moody’s Upgrades India’s 2024 Growth Forecast to 6.8%

Moody's Investors Service has revised India's growth forecast for the 2024 calendar year upwards to 6.8%, an optimistic outlook brought by the country's strong economic performance.

The global rating agency had earlier projected a 6.1% growth rate for 2024. This upward revision comes on the back of India's "stronger-than-expected" economic data in 2023 and the dissipation of global economic headwinds.

India's Robust Economic Performance in 2023

India's real GDP expanded by an impressive 8.4% year-on-year in the fourth quarter of calendar year 2023, resulting in a remarkable 7.7% growth for the full year. This growth was fueled by various factors, including the government's capital spending initiatives and a thriving manufacturing sector.

Moody's highlighted that high-frequency indicators suggest the economy's momentum from the latter part of 2023 has carried over into the March quarter of 2024. Robust goods and services tax collections, rising auto sales, consumer optimism, and double-digit credit growth indicate resilient urban consumption demand. Moreover, expanding manufacturing and services Purchasing Managers' Indices (PMIs) provide evidence of solid economic momentum on the supply side.

Continued Policy Focus on Infrastructure Development

The interim budget for the current fiscal year 2024-25 has allocated Rs 11.1 lakh crore, or 3.4% of GDP, toward capital expenditure. This figure represents a 16.9% increase over the previous year's estimates. Moody's expects policy continuity after the general election, with a sustained focus on infrastructure development.

While private industrial capital spending has been slow to pick up, Moody's anticipates an increase driven by ongoing supply chain diversification benefits and the government's Production Linked Incentive scheme. This scheme aims to boost key targeted manufacturing industries, further strengthening the country's economic momentum.

The Reserve Bank of India (RBI) is anticipated to continue to take a cautious stance on monetary policy.With inflation remaining above the 4% target, Moody's does not anticipate policy easing anytime soon. The RBI kept the repo rate steady at 6.5% in February, a level unchanged since March 2023.

Moody's forecast G20 economies will collectively expand by 2.4% in 2024 and 2.6% in 2025, down from 2.9% in 2023. The agency also highlighted the influence of geopolitical realities on international trade flows, capital flows, migration trends, and international organizations in the years to come. Businesses are responding to evolving geopolitical dynamics by reorganizing supply chains and capital sources.

Moody's optimistic revision of India's growth forecast underscores the resilience and potential of the Indian economy. With supportive factors such as government spending, manufacturing activity, and policy continuity, India is on track to sustain its growth momentum amidst evolving global economic dynamics.