Indian economy in "sweet spot": Moody's predicts 7.2% growth for 2024

The Indian economy is navigating a "sweet spot" with robust growth and moderating inflation, according to Moody's Ratings. In its Global Macro Outlook for 2025-26, Moody's projected a 7.2% GDP growth for India in 2024, tapering to 6.6% in 2025 and 6.5% in 2026. The agency highlighted India's strong macroeconomic fundamentals amidst global challenges like post-pandemic recovery, geopolitical tensions, and policy shifts in key economies.

Moody's noted that India's real GDP expanded by 6.7% year-over-year in Q2 2024 (April-June), spurred by a revival in household consumption, robust investments, and a strong manufacturing sector. High-frequency indicators such as expanding manufacturing and services PMIs, rising credit growth, and consumer optimism signal steady economic momentum into the third quarter of the year.

Key growth drivers include increased household consumption fueled by the ongoing festive season, improving rural demand, and a positive agricultural outlook. Private investments are also set to gain from rising capacity utilization, favorable business sentiment, and continued government infrastructure spending. Moody's highlighted sound economic fundamentals, such as healthy corporate and bank balance sheets, a robust external position, and substantial foreign exchange reserves, as supportive of sustained growth.

However, inflationary pressures remain a concern. Headline inflation hit 6.2% in October 2024, breaching the Reserve Bank of India's (RBI) tolerance band due to a sharp rise in vegetable prices. Despite this uptick, Moody's expects inflation to ease in the coming months as food prices stabilize, supported by higher crop sowing and sufficient grain stocks.

The RBI's cautious stance on monetary policy reflects these inflationary risks. While the central bank shifted to a neutral policy stance in October 2024, holding the repo rate steady at 6.5%, it is likely to maintain tight policy settings into next year to balance inflation risks and healthy growth dynamics.

Moody's added that potential inflation risks from geopolitical tensions and extreme weather events necessitate vigilance. Nonetheless, India's economic outlook remains optimistic, with steady growth and improving household consumption underpinning its resilience in a challenging global environment.