Moody’s Ratings has predicted India’s economic growth to expand 7.2 per cent in the current calendar year ending December 31. The rating agency, on Friday, said the country’s economy is growing robustly and has the potential to sustain high growth rates as strong private sector financial health reinforces a virtuous economic cycle. However, the agency sees growth to tapper off during next two years.

In its Global Macro Outlook 2025-26, the US-based rating agency said: “High-frequency indicators – including expanding manufacturing and services PMIs, robust credit growth and consumer optimism – signal steady economic momentum in Q3. Indeed, 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 per cent growth for calendar year 2024, followed by 6.6 per cent in 2025 and 6.5 per cent in 2026.

Highlighting that India’s real GDP expanded 6.7 per cent year-over-year in the second quarter of 2024, it attributed the growth to the revival in household consumption, robust investment and strong manufacturing activity. “There are indications of a steady economic momentum in the July-September quarter as well,” it said.

“Sound economic fundamentals, including healthy corporate and bank balance sheets, a stronger external position and ample foreign exchange reserves also bode well for the growth outlook,” it said.

Tight monetary policy

However, it has predicted that RBI will retain tight monetary policy next year as well. “The rating agency said that 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 per cent in October, it will likely retain relatively tight monetary policy settings into next year given the fairly healthy growth dynamics and inflation risks,” it said.

Sporadic food price pressures continue to inject volatility in the disinflation trajectory. Headline inflation breached the upper bound of the RBI’s 4 per cent (+/-2 per cent) tolerance band for the first time in more than a year in October, accelerating to 6.2 per cent amid a sharp jump in vegetable prices. Despite the near-term uptick, inflation should moderate toward the RBI’s target in the coming months as food prices ease amid higher sowing and adequate food grain buffer stocks, it said.

The headline retail inflation or Consumer Price Index (CPI) surged to a 14-month high of 6.2 per cent in October due to persistent rise in vegetable prices. However, preliminary data on sowing of winter crops has pointed out a decline in acreage of agricultural crops as of November 8. But the good part is there is over 75 per cent rise in acreage of onion.

Moody’s report also said that India’s household consumption is poised to grow, fuelled by increased spending during the ongoing festive season and a sustained pickup in rural demand on the back of an improved agricultural outlook. “Additionally, rising capacity utilization, upbeat business sentiment and the government’s continued thrust on infrastructure spending should support private investment,” it said.

Meanwhile, the report also said in the context of Chinese exports likely to face hurdles as India along with the US, Europe, Brazil and Indonesia adopt trade barriers. “Some of the trade barriers, such as local content requirements or quotas, will be more difficult to circumvent than tariffs,” it said.

Moody’s said that several G-20 economies, including India are exploring industrial policies in an effort to improve their economic resilience, which could potentially alter the structures of their economies. “Supply chain relocation and investment from multinational companies and Chinese domestic manufacturing firms looking to geographically diversify production additionally create opportunities for India, Mexico and several south-east Asian countries,” it said.

Related Topics