India’s economy in sweet spot with strong growth: Moody’s

New Delhi: Indian economy is in a "sweet spot" with strong growth and inflation expected to ease in the coming months, according to Moody’s Global Macro Outlook report released on Friday. The global ratings agency has 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. It also expects the Indian economy to maintain its steady momentum in the July-September quarter after clocking a 6.7 per cent growth rate in the April-June quarter. "High-frequency indicators – including expanding manufacturing and services PMIs, robust credit growth and consumer optimism – signal steady economic momentum in Q3," Moody’s Ratings said.

"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," the report states.

“India’s (Baa3 stable) economy is growing robustly and has the potential to sustain high growth rates as strong private sector financial health reinforces a virtuous economic cycle,” it said. Private investment is likely to be supported by increasing capacity utilization, strong business sentiment, and the government’s infrastructure investments, the report added. Moody’s also highlighted that India’s solid economic fundamentals, like healthy corporate and bank balance sheets, a resilient external position, and robust foreign exchange reserves, bolster the outlook.

The report also predicts a decline in the inflation rates in the months ahead.

“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 foodgrain buffer stocks,” the report said.

India’s inflation surged to a 14-month high of 6.2 per cent in October, crossing the upper limit of the RBI’s 2-6 per cent band, driven by higher food prices and the late withdrawal of the monsoon caused extensive damage to vegetable crops such as potatoes and onions. This has killed hopes of a rate cut by the RBI to accelerate economic growth as the central bank has made it clear that it will reduce the policy rate only if inflation comes down to 4 per cent on a durable basis.

“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,” the Moody’s report states.