Indian Economy In A 'Sweet Spot,' Moody's Predicts 7.2% Growth In 2024

In India, Moody’s reported that real GDP expanded by 6.7 per cent year-on-year in the second quarter of 2024, driven by a recovery in household consumption, strong investment, and more

The Indian economy is in a "sweet spot," combining solid growth with moderating inflation, according to Moody’s Ratings. The agency forecasts India’s GDP to grow by 7.2 per cent in 2024 and 6.6 per cent in 2025. In its ‘Global Macro Outlook 2025-26,’ Moody’s highlighted the global economy's remarkable resilience in recovering from pandemic-induced supply chain disruptions, the energy and food crises following the Russia-Ukraine war, and high inflation exacerbated by monetary policy tightening. It noted that most G-20 economies are expected to experience steady growth, supported by policy easing and favourable commodity prices.

However, the agency warned that post-election changes in US domestic and international policies could accelerate global economic fragmentation, complicating the ongoing stabilisation process. Shifts in trade, fiscal, immigration, and regulatory policies could expand the range of potential outcomes for countries and sectors.

In India, Moody’s reported that real GDP expanded by 6.7 per cent year-on-year in the second quarter (April-June) of 2024, driven by a recovery in household consumption, strong investment, and robust manufacturing activity. High-frequency indicators, such as rising manufacturing and services PMIs, strong credit growth, and consumer optimism, suggest steady momentum for the economy in the third quarter.

Moody’s described the Indian economy as being in a “sweet spot,” with a balance 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," the agency said.

The outlook for household consumption remains positive, driven by increased spending during the festive season and stronger rural demand, bolstered by an improved agricultural outlook. Rising capacity utilisation, positive business sentiment, and the government's continued focus on infrastructure spending should also support private investment.

Moody’s cited strong economic fundamentals—including healthy corporate and bank balance sheets, a stronger external position, and ample foreign exchange reserves—as key factors supporting India’s growth prospects. 

However, food price volatility continues to pose a risk to the disinflation trajectory. Headline inflation rose to 6.2 per cent in October, breaching the upper limit of the Reserve Bank of India’s (RBI) tolerance band for the first time in over a year, driven by a sharp increase in vegetable prices. Despite this short-term uptick, Moody’s expects inflation to moderate toward the RBI's target in the coming months as food prices ease due to higher sowing and sufficient food grain stocks.

That said, risks to inflation remain, with geopolitical tensions and extreme weather events potentially adding pressure. As a result, the RBI’s cautious approach to policy easing is expected to continue. While the central bank shifted to a neutral monetary policy stance in October, keeping the repo rate steady at 6.5 per cent, it is likely to maintain relatively tight monetary settings in 2024 due to healthy growth dynamics and ongoing inflation risks.