Moody’s has revised its growth forecast for the calendar year (CY) 2024, raising it to 7.1% from its earlier projection of 6.8% made in June. This adjustment reflects the expectation that India will play a key role in driving growth in the Asia-Pacific region, which is anticipated to outpace the global economy in the coming years.

Moody’s upward revision comes just a month after the ratings agency had similarly upgraded India’s GDP growth forecast to 7.2% for 2024 and 6.6% for 2025. For CY 2025, Moody’s has maintained its growth forecast for India at 6.5%.

The latest upgrade aligns with recent adjustments made by other prominent financial institutions. In September, the World Bank revised its fiscal year 2025 (FY25) growth forecast for India to 7%, which is up from its previous estimate of 6.6%. The World Bank attributed this upward revision to several factors, including increased government spending on infrastructure, a rise in household investments in real estate, favourable monsoon and agricultural output, and a surge in private consumption.

Similarly, the International Monetary Fund (IMF) revised India’s GDP growth forecast for FY25, upgrading it by 20 basis points to 7% in July. These upgrades by Moody’s, the World Bank, and the IMF collectively indicate growing confidence in India’s ability to maintain its growth momentum, despite potential headwinds.

India’s economy has shown resilience and growth, with the previous fiscal year (FY24) witnessing an expansion. According to data released by the National Statistical Office (NSO), India’s GDP grew at an impressive rate of 8.2% in FY24, outpacing the 7% growth reported in FY23. This robust growth was driven by healthy domestic demand, a surge in investment, and strong performance in the services sector.

The Reserve Bank of India (RBI) also holds an optimistic outlook, expecting the economy to grow at 7.2% in FY25. However, the country did experience a slight slowdown in the April-June quarter (Q1, FY25), with GDP growth recorded at 6.7%. This marked the slowest pace of growth in five quarters, following a 7.8% expansion in the previous quarter (Q4, FY24).

Experts attribute this temporary slowdown to factors such as a lack of economic momentum during the general elections, muted government capital expenditure, and uneven monsoon patterns. However, this deceleration is expected to be short-lived, with India’s economic growth projected to pick up in the coming quarters, supported by policy measures, infrastructural investments, and improved consumption trends.

Moody’s Analytics, in its latest commentary titled “APAC Outlook: Two Steps Forward, One Step Back,” emphasized that the Asia-Pacific region is set to outpace global economic growth in the coming years. The report predicts that the region will grow by 3.9% in 2024 and 4% in 2025, with developed economies within the region expected to pick up momentum in 2025.

However, Moody’s Analytics cautioned that while exports have been a crucial driver for the region’s growth, this trend rests on an unstable footing. Key export sectors, such as semiconductors, are experiencing a slowdown, and global demand for goods has remained relatively soft. Additionally, China’s policy-driven ramp-up in exports has sparked a wave of protectionism abroad, potentially creating challenges for other economies in the region.

Despite these headwinds, the Asia-Pacific region is expected to maintain its growth momentum, driven by domestic demand. According to Moody’s, consumption spending across the region’s largest economies has not yet reached full strength, but there is optimism that fading inflation and appreciating currencies will pave the way for interest rate cuts.

India’s growth story is largely driven by robust domestic demand and investment, which continue to act as strong pillars of the economy. The government’s focus on infrastructure development and the rise in household investments, particularly in real estate, have significantly contributed to the country’s economic resilience. Moreover, India has witnessed a steady increase in private consumption, further boosted by improved agricultural output and a favourable monsoon season.

The services sector has also played a pivotal role in India’s economic expansion, accounting for a significant portion of GDP growth. With technological advancements, digital transformation, and increased penetration of internet services, sectors such as finance, IT, retail, and hospitality have experienced growth, further driving the overall economic performance.

While the growth projections for India remain optimistic, several challenges could impact the trajectory. These include global economic uncertainties, potential disruptions in supply chains, geopolitical tensions, and fluctuations in commodity prices. Additionally, the impact of climate change, unpredictable monsoon patterns, and inflationary pressures could pose challenges to the Indian economy.

However, with strong fundamentals, a growing middle class, and an increasingly digital and tech-savvy population, India is well-positioned to navigate these challenges. The government’s continued focus on reforms, infrastructure development, and initiatives to boost the manufacturing sector will play a crucial role in ensuring sustained growth.

Story first published: Wednesday, September 25, 2024, 11:56 [IST]