Moody’s Ratings on Thursday raised its India GDP growth forecast for 2024 by 0.4 percentage point to 7.2% citing signs of a revival in rural demand, while Fitch Ratings retained the country’s long-term foreign-currency issuer rating at ‘BBB-’ with a stable outlook, even as it noted that fiscal metrics remained a credit weakness along with governance and GDP per capita trends.
“We have raised our real GDP growth projections for the Indian economy [and] now expect 7.2% real GDP growth in 2024, and 6.6% growth in 2025 versus our earlier estimate of 6.4%,” Moody’s said in a global macro outlook update. “These forecast changes assume strong broad-based growth and we recognize potentially higher forecasts if the cyclical momentum, especially for private consumption, gains more traction,” it added.
Pointing to signs of a revival in rural demand, Moody’s said it expects household consumption to grow as headline inflation eases toward the central bank’s 4% target even though it noted that retail inflation’s easing to 3.5% in July, was driven by “favourable base effects”.
Asserting that the Indian economy was “in a sweet spot, with the mix of solid growth and moderating inflation,” Moody’s flagged that growth prospects over the medium- and longer-term would, however, “depend on how well the country can productively tap its substantial pool of labour.” The extent to which the country ultimately reaped its demographic dividend would depend on the success of government policies for employment generation and skilling, the rating major underlined.
Separately, Fitch Ratings noted that although India’s strong medium-term growth outlook and the achievement of deficit targets had improved prospects of a modest downward trend in government debt, fiscal metrics still remained a credit weakness as “deficits, debt, and debt service burden” were all high compared to its ‘BBB-’ rated peers..
“Lagging structural metrics, including governance indicators and GDP per capita, also weigh on the rating,” Fitch said.
Retaining its GDP growth estimate for 2024-25 at 7.2%, followed by 6.5% next year, Fitch pegged India’s medium-term potential GDP growth at 6.2%, “underpinned by the infrastructure push, strong services sector, and solid private investment outlook”.
While healthier bank and corporate balance sheets should pave the way for a positive investment cycle, Fitch said that a key risk was that the ‘private investment cycle may not materialise due to subdued consumption, which would weigh on job creation and dampen potential benefits from India’s demographic dividend’.
On the Indian government’s target to bring fiscal deficit to or below the 4.5% of GDP mark by 2025-26, Fitch reckoned the deficit would hit 4.4% of GDP next year, followed by a steady reduction of 0.2% of GDP per year till it touches 3.8% in 2028-29. This, it said, assumed a sustained strong revenue growth and a slight reduction in capex spending.
