Moody's Upgrades India's Growth Outlook Sharply To 6.8% For 2024; Says 'Fastest Growing Among G20 Nations'

Global ratings agency Moody's Investors Service has revised its GDP growth estimate for India in 2024 to 6.8%, up from the earlier forecast of 6.1% in November 2023. This positive outlook comes on the back of robust capital spending by the government and a surge in manufacturing activity.

Moody's reported that India's real GDP expanded by 8.4% year-over-year in the fourth quarter of 2023, resulting in a full-year growth of 7.7% for 2023. With global headwinds fading, Moody's believes that the Indian economy is poised to comfortably register a 6-7% real GDP growth. The agency forecasts continued growth with a projection of 6.8% for the calendar year 2024 and 6.4% for 2025.

The strong growth outcomes in 2023 were attributed to significant contributions from government capital spending and robust manufacturing activity. Moody's expects this momentum to continue post the general elections, with a focus on infrastructure development ensuring policy continuity. With inflation above the 4% target, the agency does not anticipate policy easing in the near future.

In its February update of the Global Macro Outlook 2024-25, Moody's highlighted that the Reserve Bank of India (RBI) is likely to maintain current interest rates in the coming months, given the nation's strong economic growth and firm inflation. The agency predicts retail inflation in India to be at 5.2% in 2024 and 4.8% in 2025.

The RBI's decision to keep the repo rate steady at 6.5% in February aligns with Moody's expectations. The report emphasized the moderation of headline inflation in January to 5.1% from 5.7% in the previous month. Core inflation also saw a decline to 3.5%, down from 3.8% in December.

Moody's broader economic analysis extends to the global stage, forecasting that the growth of G20 economies will stabilize at slightly lower levels in 2024. The agency anticipates collective expansion by 2.4% in 2024 and 2.6% in 2025, a decrease from the 2.9% growth observed in 2023. While G20 advanced economies are expected to slow, emerging market countries, including India, are projected to maintain robust growth.

A noteworthy observation from Moody's is the indication of a private capex cycle gaining momentum. Despite a slow start in private industrial capital spending, ongoing supply chain diversification benefits and the government's Production Linked Incentive scheme are expected to boost investments in key manufacturing industries. According to the RBI, the total cost of private corporate projects sanctioned by major banks and financial institutions increased by 23% during April-December 2023 compared to the same period a year ago, indicating a strengthening private capex cycle.

The agency further pointed out rising capacity utilization, credit growth, and optimistic business sentiment as factors contributing to an improving outlook for private investment. High-frequency indicators suggest that the strong momentum from Q3 and Q4 of 2023 has carried into the first quarter of 2024, with robust goods and services tax collections, rising auto sales, consumer optimism, and double-digit credit growth indicating resilient urban consumption demand.

India's economy grew by a better-than-expected 8.4% in the final quarter of 2023, marking the fastest pace in one-and-a-half years. The growth rate in October-December surpassed the 7.6% recorded in the previous three years, resulting in a fiscal year estimate of 7.6% for April 2023 to March 2024, surpassing earlier projections.

The year 2024 is crucial, not just for India but for several G-20 countries, including Indonesia, Mexico, South Africa, the UK, and the US. Moody's emphasizes that the implications of elections extend beyond borders, influencing economic and public policies in an increasingly fractious world. The leaders elected this year will play a significant role in shaping domestic and foreign policies for the next four to five years, impacting businesses and prompting responses such as the reorganization of supply chains and capital sources.

Moody's concludes by highlighting the complex interplay of geopolitical realities, which will influence international trade flows, capital movements, migration trends, and international organizations in the years to come. Domestically, the agency notes that the industrial and trade policies of several countries are intertwined with foreign policy considerations.