New Delhi: Moody’s Ratings on Friday projected India to grow 6.8 per cent in the current year, followed by 6.5 per cent in 2025, on the back of strong, economic expansion, along with post-election policy continuity.
India’s real GDP grew 7.7 per cent in 2023, up from 6.5 per cent in 2022, driven by robust capital spending by the government and strong manufacturing activity.
High-frequency indicators, including robust goods and services tax collections, rising auto sales, consumer optimism and expanding manufacturing and services PMIs, have signalled sustained economic momentum in March and June quarter this year.
“The wide divergence between the GVA and GDP in the October-December quarter was mainly due to a sharp fall in subsidies in that quarter largely because of lower payouts on fertilizer subsidies like Urea,” reported Reuters, citing a senior government official.
The divergence was at a 10-year high, said Neelkanth Mishra, chief economist at Axis Bank, who does not expect this to continue and sees the economy growing 6.5 per cent in the next financial year.
India’s GDP growth is estimated at 7.6 per cent for the year ending March 31, 2024.
Fastest growing among G-20 economies: Moody’s said in its Global Macroeconomic Outlook for 2024 that the Indian economy is likely to remain the fastest growing among G-20 economies.
“India’s economy has performed well and stronger-than-expected data in 2023 has caused us to raise our 2024 growth estimate to 6.8 per cent from 6.1 per cent. India is likely to remain the fastest growing among G-20 economies over our forecast horizon,” said the report.
This year’s interim budget targets capital expenditure allocation of Rs 11.1 lakh crore or 3.4 per cent of GDP in 2024-25 (fiscal year 2025), 16.9 per cent above the 2023-24 estimates.
“We expect policy continuity after the general election and continued focus on infrastructure development,” Moody’s said.
The agency said while private industrial capital spending has been slow to pick up, it is expected to pick up with ongoing supply chain diversification benefits and investors’ response to the government’s Production Linked Incentive scheme to boost key targeted manufacturing industries.
The year 2024 is an election year for several G-20 countries including India, Indonesia, Mexico, South Africa (Ba2 stable), the UK and the US.
Implications of elections can go beyond borders and economic and public policy in today’s increasingly fractious world, it said.
“Leaders elected this year will influence domestic and foreign policies for the next four to five years. Businesses are accordingly responding to evolving geopolitical dynamics by reorganizing supply chains and capital sources,” Moody’s said.
It said geopolitical realities will be influencing international trade flows, capital flows, international migration trends and international organizations in the years to come. Domestically, industrial and trade policies of several countries are intertwined with foreign policy
Q3 GDP at a glance: Indian industries fared well in the December quarter, with manufacturing and construction growing 11.6 per cent YoY and 9.5 per cent YoY respectively, reflecting the public capex support push.
The services sector too fared well, with recovery seen in the Trade, Hotel, Transport, and Communication segments, in addition to Financial, Real Estate, and Professional Services.
However, in line with the narrative, private consumption growth in India leaves much to be desired, having grown 3.5 per cent in Q3.
“Although a pickup in private consumption was anticipated, owing to the festive season buoyancy that proxy indicators had pointed towards, the extent of upside was underwhelming for sure,” news agency Reuters reported Yuvika Singhal, an economist at QuantEco Research as saying.
Interestingly, the government’s spending declined sharply as it contracted 3.2 per cent in Q3FY24, having grown 13.8 per cent in Q2.
Gross Fixed Capital Formation (GFCF), or fixed investment, continued to drive growth, up 10.6 per cent in Q3. The reading in Q2 stood at 11.6 per cent. Monsoon disappointment meant that agriculture GVA growth contracted 0.8 per cent in Q3, down from 1.6 per cent in Q2.
Economists at Nomura have said that India’s economic growth will continue to remain resilient. However, if one considers ‘core GDP’, which is GDP excluding valuables, discrepancies and inventories (volatile components), then India’s underlying growth has in effect slowed to 4 per cent in Q3 from 4.7 per cent in Q2.
“The Q4 GDP growth reading, while superlative, should not be interpreted as evidence of strong growth. The moderation in core GDP growth and in GVA growth suggests growth remains uneven,” wrote Sonal Varma and Aurodeep Nandi, economists at Nomura in a note.
They note that the Indian economy continues to be primarily supported by strong public capex growth, while private consumption and private capex remain subdued.
“The sustainability of investment growth in the medium-term hinges significantly on the imperative need to strengthen consumption growth. The escalation of global geopolitical tensions and slowing external demand can further add to the downside risks to external sector,” said Rajani Sinha, Chief Economist at CareEdge.
