Moody's maintains its 6.7% growth estimate for India in 2023 due to robust domestic demand

 Moody's maintains its 6.7% growth estimate for India in 2023 due to robust domestic demand

India's economy is being driven by continuous growth in domestic demand, according to Moody's Global Macroeconomic Outlook 2024–25, despite the country's exports being sluggish against an unfavorable global economic backdrop.

On Thursday, Moody's Investors Service maintained its estimate of 6.7% economic growth for India in 2023 and said that the country's robust domestic demand is expected to support the development in the near future.

India's economy is being driven by continuous growth in domestic demand, according to Moody's Global Macroeconomic Outlook 2024–25, despite the country's exports being sluggish against an unfavorable global economic backdrop.

According to Moody's, we anticipate that India's real GDP will increase by around 6.7% in 2023, 6.1% in 2024, and 6.3% in 2025. India's real GDP increased 7.8% year over year in the June quarter compared to the March quarter's 6.1% gain, driven by a 6% rise in household consumption, strong capital investment, and activity in the service sector.

According to Moody's, high-frequency indicators indicate that the economy maintained its robust pace from the June quarter into July and September. Strong collections of goods and services taxes, soaring vehicle sales, increasing consumer confidence, and double-digit credit growth all point to the likelihood that urban spending demand will be durable over the present holiday season.

Although there have been some encouraging indications of recovery, Moody's said that irregular monsoons might still reduce agricultural yields and farm revenue due to the vulnerability of rural demand. On the supply side, it said that growing PMIs for manufacturing and services as well as the robust production growth of key sectors contribute to the evidence of a strong economy.

Given the unfavorable global economic environment and the continued weakness of exports, robust local demand is anticipated to support growth in the near future. It said that the dynamics of domestic demand after the holidays would be determined by the trajectory of inflation and the delayed effects of the RBI's tightening of monetary policy. In September, headline inflation returned to within the RBI's target range, easing to 5% from 6.8% in the previous month.

Despite the fact that core inflation also decreased to 4.5% from 4.8% in August, Moody's said that the RBI would remain on guard due to anticipated surges in food and energy costs in the face of unpredictable weather and geopolitical unrest.

For the fourth consecutive meeting in October, the RBI maintained the repo rate at 6.5%. According to Moody's, this is because the central bank reiterated at its meeting that the inflation target is 4%, not 2%–6%. As a result, sub–6% inflation prints are unlikely to be sufficient for the RBI to loosen its monetary policy stance.