Moody’s Ratings on Thursday raised India’s GDP growth forecast for 2023-24 to around 8 per cent from 6.6 per cent on the back of strong domestic consumption and capital expenditure.

The estimate comes a day after RBI governor Shaktikanta Das said economic growth in the current financial year could be close to 8 per cent in view of the third quarter GDP data released by the government.

The latest estimate of Moody’s is about 140 basis points higher than the earlier projection of 6.6 per cent made in November 2023.

The forecast is much higher than the ones given by its peers as well as by the IMF
and World Bank and comes close on the heels of the India’s Central Statistics Office ramping up the growth for the fiscal to 7.6 per cent from 7.3 per cent.

“We expect India to be the fastest-growing economy among major G20 countries, with its real GDP growth to accelerate to around 8 per cent in the fiscal year ending March 2024 (fiscal 2023-24) from 7 per cent in fiscal 2022-23,” Moody’s said in a report.

Moody’s last reviewed India’s sovereign rating in August when it affirmed a ‘Baa3’ rating on India with a stable outlook.

Following the Union budget on February 1, a senior official of the rating agency has said a large part of India’s budget goes in servicing debt, which makes it difficult to make a sovereign rating upgrade.

Government capital expenditure and strong domestic consumption will underpin India’s economic growth.

Moreover, India is poised to benefit from increased global trade and investment opportunities arising from companies’ strategies to diversify away from China, it said.

“We expect India’s inflation rate will decline to 5.5 per cent in 2023-24 from a peak of 6.7 per cent in fiscal 2022-23, and further disinflation will support monetary easing going forward,” it said.

With regard to the banking sector, the report said, non-performing assets (NPAs) will continue to fall as the operating environment improves.

The system wide NPA ratio dropped to 3.2 per cent as at September-end 2023 from a peak of 11.2 per cent at the end of March 2018 because of recoveries and write-offs of legacy problem loans.

Slippage ratios — or the ratios of newly accredited NPAs to total standard assets during a period — will stay low, helped by India’s strong economic growth, it said.

“We expect banks’ Common Equity Tier 1 ratios to decline 50-80 basis points because of increase in risk weights for exposures to NBFCs and unsecured retail loans,” Moody’s said.

Still, banks’ capitalisation will remain strong as their internal capital generation keeps pace with capital consumption, it said, adding, they will also be able to raise capital easily if needed, given India’s buoyant equity market.