Moody’s Ratings has projected a robust 7.2% GDP growth for India in 2024, highlighting the nation’s strong economic performance and favorable growth conditions.
However, the agency warned that persistent inflationary risks could prompt the Reserve Bank of India (RBI) to maintain a tight monetary policy for the coming year.
India’s economic outlook remains positive, with Moody’s noting that the country is currently in a ‘sweet spot’, balancing solid growth with moderating inflation.
The agency expects retail inflation to ease in the coming months, primarily due to stabilizing food prices, bolstered by an increase in sowing activities and sufficient food grain stocks.
However, inflation reached a 14-month high of 6.21% in September, largely driven by a surge in vegetable prices, which breached the RBI’s upper tolerance limit for inflation.
Moody’s pointed out that food price volatility continues to inject unpredictability into the inflation trajectory.
Moreover, external risks such as geopolitical tensions and extreme weather events could further exacerbate inflationary pressures. These factors reinforce the RBI’s cautious stance on policy easing.
Moody’s in its Global Macro Outlook stated, “Potential risks to inflation from heightened geopolitical tensions and extreme weather events underscore the RBI’s cautious approach to policy easing. Although the central bank shifted its monetary policy stance to neutral while keeping the repo rate steady at 6.5 percent in October, it will likely retain relatively tight monetary policy settings into next year, given the fairly healthy growth dynamics and inflation risks.”
The RBI’s next interest rate meeting is for December, and with inflation remaining elevated, a rate cut is considered unlikely at this time.
Moody’s Forecasts Strong Household Consumption & Private Investment Growth
On the positive side, Moody’s highlighted that household consumption will likely grow steadily, driven by increased spending during the festive season and sustained rural demand.
Additionally, rising capacity utilization and favorable business sentiment, coupled with government-led infrastructure investments, should continue to support private investment and contribute to the overall growth outlook.
India’s real GDP grew by 6.7% year-on-year in the second quarter of 2024, driven by a recovery in household consumption, strong investment, and resilient manufacturing activity.
The momentum is likely to persist into the third quarter, indicating a steady economic trajectory.
“From a macroeconomic perspective, the Indian economy is in a sweet spot, with the mix of solid growth and moderating inflation. We forecast 7.2 percent growth for the calendar year 2024, followed by 6.6 percent in 2025 and 6.5 percent in 2026,” Moody’s asserted.
The positive outlook is also supported by India’s solid economic fundamentals, including healthy corporate and bank balance sheets, a stronger external position, and ample foreign exchange reserves, all of which bode well for long-term growth prospects.
Globally, Moody’s observed that the world economy has shown resilience in the face of supply chain disruptions, an energy and food crisis following the Russia-Ukraine war, and high inflation leading to tightening monetary policies.
Madhavi Bokil, Senior Vice President at Moody’s Ratings and author of the report stated, “Most G-20 economies will experience steady growth and continue to benefit from policy easing and supportive commodity prices. However, post-election changes in US domestic and international policies could potentially accelerate global economic fragmentation, complicating ongoing stabilization.”
Moody’s noted that increasing trade protectionism and efforts by large economies to strengthen domestic industries could reduce reliance on external demand for growth.
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