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,” the ratings agency said.
The economy expanded 7.8% on-year in the first quarter of 2024 despite the persistence of tight monetary policy and demonstrated progress on fiscal consolidation. India’s economy likely grew by a median 6.9% in the April-June period from a year earlier, according to an ET poll.
The government will release the growth numbers for the quarter on Friday.
“Both the industrial and services sectors have recorded strong performances, with the services PMI in particular remaining above 60 since the beginning of the year,”Moody’s said.
As per the report, household consumption is poised to grow as headline inflation eases toward the Reserve Bank of India’s (RBI) target.
“Indeed, signs of a revival in rural demand are already emerging, on the back of improving prospects for agricultural output amid above-normal rainfall during the monsoon season,” it said.
Moreover, non-financial corporate and bank balance sheets are significantly healthier than before the pandemic, and firms are increasingly tapping equity and bond markets to raise capital.
Referring to a recent paper by the RBI which projects a 54% jump in envisaged private capex in the current financial year, Moody’s said that the capex cycle should continue to gain steam amid rising capacity utilization, upbeat business sentiment and the government’s continued thrust on infrastructure spending.
Although manufacturing has gained limited traction over the past decade, underlying improvements in the domestic operating environment and broader global trends improve prospects for India’s manufacturing sector going forward, according to the ratings agency.
“Supporting the growth dynamics is the rapid and widespread digitalization of the economy, driven by the government’s investments to build digital public infrastructure (a triad of identity, payments and data management solutions), growing telecom and internet penetration and low data usage costs,” Moody’s said.
In particular, broad-based adoption of the United Payments Interface (UPI) — which accounts for nearly 80% of all digital payments and whose transaction volumes have grown tenfold over the past four years — has significantly accelerated financial inclusion and formalization of the economy.
India’s external position has also strengthened in recent years amid a marked narrowing of its current account deficit.
The current account registered a modest surplus in the quarter ending March 2024 — its first in ten quarters — primarily because of robust services exports and strong remittance inflows.
Additionally, ample reserves accumulated over the past decade also give the RBI a greater capacity to intervene in foreign exchange markets to dampen rupee volatility more than during past crises.
From a macroeconomic perspective, the Indian economy is in a sweet spot, with the mix of solid growth and moderating inflation,” Moody’s commented.
Although driven by favorable base effects, headline inflation fell below the RBI’s median target of 4% to 3.5% in July, down from
5.1% in June.
It concluded that over the medium- and longer-term, India’s growth prospects depend on how well the country can productively tap its substantial pool of labor. India’s population has a median age of 28 years and around two-thirds of it are of working age.
While employment generation and skill development are government priorities, the extent to which India reaps a demographic dividend will depend on whether and how well these policies succeed. Nevertheless, 6%-7% growth should be possible for the economy sheerly on the basis of present conditions, Moody’s said.
Content Source: economictimes.indiatimes.com