India's GDP To Grow 6.7% In 2023, 6.1% In 2024: Moody's

Economic growth in India has held up, buoyed by solid domestic demand, despite repercussions from global financial tightening, according to Moody's Investors Service Inc.

The country's growth momentum remains strong, and the economy is expected to grow 6.7% in 2023, followed by growth of 6.1% in 2024 and 6.3% in 2025. High-frequency indicators show that the economy's strong second-quarter momentum carried into the third quarter, the credit ratings agency said in a release.

Robust collections of the goods and services tax, surging auto sales, rising consumer optimism and double-digit credit growth suggest urban-consumption demand will likely remain resilient amid the festive season. However, rural demand, which has shown nascent signs of improvement, remains vulnerable to uneven monsoon that could lower crop yields and farm income, it said.

Expanding manufacturing and services PMIs and healthy core industries' output growth add to the evidence of solid economic momentum. With exports remaining weak amid an unfavourable global economic backdrop, strong domestic demand will likely sustain growth in the near term, it said.

Domestic demand dynamics beyond the festive season will depend on the trajectory of inflation and the lagged impact of the Reserve Bank of India's monetary policy tightening. Upside risks to headline retail inflation from potential spikes in food and energy prices amid erratic weather and geopolitical uncertainty will keep the RBI vigilant, according to Moody's.

The RBI held the repo rate steady at 6.5% for the fourth consecutive meeting in October. With the central bank reiterating that the inflation target is 4% and not 2–6% at its October meeting, sub-6% inflation prints will likely not suffice as conditions for easing its monetary policy stance, Moody's said. "As such, we expect India's real GDP to grow about 6.7% in 2023, 6.1% in 2024 and 6.3% in 2025."

The RBI will keep rates on hold until the US Federal Reserve's rate cuts are more clearly in sight. Ample reserves, solid domestic growth and largely contained inflationary pressures offer the central bank the manoeuvrability of monetary policy calibration, it said.

However, given elevated external risks, the central bank is likely to keep interest rates high, Moody's said.