Moody's has maintained its GDP growth forecast for India at 6.8% for 2024, with a slight moderation to 6.5% expected in 2025. The agency attributes this positive outlook to strong domestic and international demand, which supports growth across emerging markets (EM) with varying trajectories. In its March Global Macro Outlook 2024-25, Moody's upgraded India's growth projection from 6.1% to 6.8% for 2024, citing robust manufacturing and increased infrastructure spending as key drivers. India is anticipated to lead in growth among G-20 economies during this period.

Current Economic Performance

For FY24, India's GDP expanded by 8.2%, driven by notable growth in manufacturing, construction, mining, and services. Moody's highlighted a moderation in headline inflation in India, primarily due to lower food prices, although volatility remains a concern. Inflation is projected to ease to 5.2% in 2024 and further to 4.8% in 2025, down from 5.7% in 2023.

Monetary Policy and Inflation Management

Regarding monetary policy, Moody's expects the Reserve Bank of India (RBI) to maintain the current interest rates amidst challenges in achieving the 4% inflation target. During its June policy meeting, the RBI held the benchmark interest rate (repo rate) steady at 6.5%, reflecting a cautious approach to managing inflationary pressures. While overall inflation has moderated below 5% since March, persistent elevated food prices continue to pose ongoing challenges to economic stability and policy decisions.

Economic Drivers and Sectoral Performance

The upward revision in India's GDP growth forecast is largely attributed to the robust performance in manufacturing and increased infrastructure spending. These sectors have shown significant resilience and growth, contributing substantially to the overall economic expansion.

Manufacturing Sector: The manufacturing sector has been a cornerstone of India's economic growth, with increased production and investment driving output. Government initiatives to boost manufacturing through schemes like 'Make in India' have played a crucial role in enhancing the sector's contribution to GDP.

Infrastructure Spending: Infrastructure development has seen a substantial increase, with large-scale projects aimed at improving connectivity and enhancing the economic landscape. Investments in roads, railways, ports, and airports are not only creating jobs but also facilitating smoother trade and commerce.

Inflation Trends and Challenges

Moody's analysis indicates that while headline inflation has moderated, the volatility in food prices remains a concern. The projection of inflation easing to 5.2% in 2024 and further to 4.8% in 2025 provides a positive outlook for the Indian economy. However, achieving and maintaining the RBI's target of 4% inflation poses a significant challenge due to persistent high food prices.

RBI's Monetary Policy Stance

The RBI's decision to hold the repo rate steady at 6.5% reflects a balanced approach to managing inflation while supporting economic growth. This cautious stance is crucial in navigating the complex economic landscape, where controlling inflation without stifling growth is a delicate balancing act. The RBI’s policies will continue to be pivotal in shaping India's economic trajectory in the coming years.

Global and Domestic Demand

Strong domestic and international demand are key factors supporting India's growth outlook. The country’s increasing integration into the global economy, coupled with a large domestic market, provides a robust foundation for sustained economic expansion. This demand is crucial in driving growth across various sectors, ensuring that the momentum is maintained.

Future Outlook

As India continues to grow, the focus on manufacturing and infrastructure will remain central to its economic strategy. The government's commitment to these sectors, along with prudent monetary policies by the RBI, will be instrumental in achieving the projected growth rates.

In conclusion, Moody's forecast of 6.8% GDP growth for India in 2024, with a moderation to 6.5% in 2025, underscores the country's robust economic fundamentals. The emphasis on manufacturing, infrastructure spending, and effective inflation management will be key to sustaining this growth. As India leads the growth among G-20 economies, its trajectory will be closely watched, with significant implications for both domestic and global markets.