India expected to remain fastest growing G20 nation: Moody's

Hyderabad: Moody's has raised India's growth forecast for the 2024 calendar year to 6.8 percent based on stronger economic data. In its Global Macroeconomic Outlook for 2024, Moody's Investors Service noted that India is expected to maintain a growth rate of 6-7 percent in real GDP. For 2025, the GDP growth is estimated at 6.4 percent. This adjustment from the earlier projection of 6.1 percent reflects India's strong economic performance in 2023, with real GDP expanding by 8.4 percent year-on-year in the fourth quarter of 2023.

Moody's mentioned that government capital spending and robust manufacturing activity have significantly contributed to India's growth in 2023. High-frequency indicators indicate that this momentum continued into the first quarter of 2024. The agency also highlighted factors such as robust goods and services tax collections, rising auto sales, consumer optimism, and double-digit credit growth as indicators of resilient urban consumption demand.

The report mentioned that the 2024-25 interim budget targets a capital expenditure allocation of Rs 11.1 lakh crore, which is 16.9 percent above the 2023-24 estimates. Moody's expects policy continuity after the general election and continued focus on infrastructure development. The agency noted that while private industrial capital spending has been slow to pick up, it is expected to increase due to ongoing supply chain diversification benefits and the government's Production Linked Incentive scheme.

2024 is an election year for several G-20 countries, including India, Indonesia, Mexico, South Africa, the UK, and the US. Moody's highlighted that the implications of these elections can extend beyond borders and impact economic and public policy. The report stated that the leaders elected this year will influence domestic and foreign policies for the next four to five years.

Regarding inflation, Moody's mentioned that headline inflation in January eased to 5.1 percent, down from 5.7 percent in the previous month, while core inflation moderated to 3.5 percent. The Reserve Bank of India (RBI) held the repo rate steady at 6.5 percent in February, the same level since March 2023. Moody's stated that given the solid growth dynamics and inflation above the 4 percent target, they do not expect policy easing anytime soon.

Moody's also discussed the influence of geopolitical realities on international trade flows, capital flows, international migration trends, and international organizations. Domestically, industrial and trade policies are intertwined with foreign policy. The report mentioned that the global economy is transitioning to a post-pandemic equilibrium, with a steady normalization in economic activity across major advanced and emerging markets. Moody's forecasted that G-20 economies will collectively expand by 2.4 percent in 2024 and 2.6 percent in 2025, down from 2.9 percent in 2023.

In 2023, Moody's affirmed India's BAA3 rating and maintained a 'stable' outlook on the Indian economy. The ratings agency noted factors such as a curtailment of civil society and political dissent, along with rising domestic political risk, in its assessment. India's long-term local and foreign-currency issuer ratings, as well as the local-currency senior unsecured rating, remain at Baa3, while the other short-term local-currency rating stands at P-3, according to Moody's statement on August 18. The affirmation and stable outlook are driven by Moody's view that India's economy is likely to continue to grow rapidly by international standards, despite a decrease in potential growth over the past 7-10 years.