Sound economic fundamentals, including healthy corporate and bank balance sheets, strong external position and adequate forex reserves bode well for the growth outlook, says Moody’s.
Moody’s Ratings said on Friday that the Indian economy is in a sweet spot with a mix of solid growth and moderate inflation. It forecasts 7.2 percent GDP growth for India in 2024, and said the RBI may maintain a relatively tight monetary policy this year amid inflationary risks.
In its Global Macro Outlook 2025-26, the US-based global rating agency said, “… from a macroeconomic perspective, the Indian economy is in a sweet spot with a mix of solid growth and moderate inflation. We forecast 7.2 percent growth for calendar year 2024, followed by 6.6 percent growth in 2025 and 6.5 percent growth in 2026.”
It says strong economic fundamentals, including healthy corporate and bank balance sheets, strong external position and adequate foreign exchange reserves bode well for the growth outlook.
The rating agency said that despite a pick-up in the near term, retail inflation should moderate towards the Reserve Bank’s target in the coming months as food prices ease amid higher sowing and adequate food grain buffer stocks.
Retail inflation breached the RBI’s upper tolerance limit to hit a 14-month high of 6.21 on account of sharp rise in vegetable prices.
Sporadic food price pressures continue to inject volatility into the path of disinflation, the agency said.
“Elevated geopolitical tensions and potential risks to inflation from extreme weather events underline the RBI’s cautious approach to policy easing. “Although the central bank shifted its monetary policy stance to neutral in October, keeping the repo rate steady at 6.5 percent, it is likely to maintain a relatively tight monetary policy setting in the year ahead, given fairly healthy growth dynamics and inflation risks,” Moody’s said. .
The RBI’s monetary policy committee, which sets interest rates, is due to meet next month, and with inflation high, the RBI is unlikely to cut benchmark interest rates.
Moody’s said household consumption is set to pick up due to increased spending during the current festive season and continued growth in rural demand.
Additionally, increased capacity utilization, buoyant business sentiment and continued government emphasis on infrastructure spending should support private investment.
India’s real GDP expanded 6.7 percent year-on-year in the second quarter of 2024, driven by a revival in household consumption, strong investment and strong manufacturing activity. There are also signs of steady economic momentum in the July-September quarter.
The global economy, Moody’s said, has shown remarkable resilience to supply chain disruptions during the pandemic, energy and food crises since the start of the Russia-Ukraine war, high inflation and consequent monetary policy tightening.
“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 exacerbate the global economic divide, complicating ongoing stabilization,” said Madhavi Bokil, senior vice president at Moody’s Ratings and author of the report.
Moody’s said trade tensions and geopolitical tensions, particularly between the US and China, are the primary risks to the global macroeconomic outlook.
Potential long-term geoeconomic fragmentation could complicate global trade and financial integration.
Economies with stronger domestic drivers of growth will experience greater resilience and stability, Moody’s said, as rising trade protectionism makes external demand a less reliable source of growth, along with pressure in many major economies to strengthen their domestic industries.