Moody’s, a prominent ratings agency, has recently revised its growth projections for India’s economy, painting a more optimistic picture for the coming years.
For the fiscal year 2025, Moody’s has increased its GDP growth forecast to 7.2%, up from its previous estimate of 6.8%. Looking further ahead to 2025, the agency now predicts a 6.6% growth rate, an improvement from the earlier projection of 6.4%.
The agency’s confidence in India’s economic prospects is rooted in several key factors. Firstly, the country has demonstrated strong, broad-based growth despite challenging conditions such as tight monetary policy and ongoing fiscal consolidation efforts. This resilience was evident in the robust 7.8% year-on-year expansion observed in the first quarter of 2024.
Both industrial and services sectors have shown impressive performances, with the services Purchasing Managers’ Index consistently remaining above 60 since the beginning of the year. This indicates a vibrant and expanding services economy.
Moody’s anticipates a boost in household consumption as inflation trends toward India’s Central Bank — the Reserve Bank of India‘s target. The recent drop in inflation from 5.1% in June to 3.5% in July has created what the agency describes as a macroeconomic “sweet spot” for India, characterized by solid growth and moderating price pressures.
Rural demand is showing signs of revival, supported by favorable monsoon conditions that promise improved agricultural output. This, combined with easing inflation, is expected to drive overall household consumption higher.
The report also highlights the improving health of nonfinancial corporate and bank balance sheets, which have strengthened significantly since the pandemic. Firms are increasingly tapping into equity and bond markets for capital, indicating growing confidence in the financial system.
Looking ahead, Moody’s expects the capital expenditure cycle to continue expanding. This forecast is based on rising capacity utilization, improving business sentiment, and the government’s sustained focus on infrastructure investment.
While acknowledging that manufacturing growth has been modest over the past decade, the agency sees promising opportunities for the sector’s future. Positive changes in the domestic operational climate, coupled with favorable global trends, are expected to boost India’s manufacturing industry.
For the long term, Moody’s emphasizes the importance of effectively utilizing India’s young workforce to sustain growth rates of 6-7%. With a median age of 28 and two-thirds of the population of working age, India possesses a unique demographic advantage. However, the report stresses that capitalizing on this potential will depend on successful employment generation and skill development policies.
