Moody's Ratings on Thursday raised India's GDP growth forecast for 2024 and 2025 calendar year to 7.2 per cent and 6.6 per cent, respectively, on strong broad-based growth.

The ratings agency said that the growth could be higher if the cyclical momentum, especially for private consumption, gains more traction.

"From a macroeconomic perspective, the Indian economy is in a sweet spot, with the mix of solid growth and moderating inflation," Moody's Ratings said in its August update of Global Macro Outlook 2024-25.

As per the projections, India's GDP growth would be 7.2 per cent in 2024, up from 6.8 per cent previously. In 2025, the growth is estimated at 6.6 per cent versus our earlier estimate of 6.4 per cent.

"We have raised our real GDP growth projections for the Indian economy for 2024 and 2025...These forecast changes assume strong broad-based growth," Moody's said.

The economy expanded 7.8 per cent year-over-year in the first quarter of 2024 despite the persistence of tight monetary policy and demonstrated progress on fiscal consolidation.

Moody's said 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.

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.

Moody's said a recent paper by the RBI also projects a 54 per cent jump in private capex in the current financial year.

The capex cycle should continue to gain steam amid rising capacity utilisation, upbeat business sentiment and the government's continued thrust on infrastructure spending.

Supporting the growth dynamics is rapid and widespread digitalisation 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 India's external position has also strengthened in recent years amid a marked narrowing of its current account deficit. Indeed, the current account registered a modest surplus in the quarter ending March 2024 — its first in 10 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.

"Over the medium- and longer-term, India's growth prospects depend on how well the country can productively tap its substantial pool of labour... Nevertheless, 6-7 per cent growth should be possible for the economy sheerly on the basis of present conditions," Moody's Ratings said.

India's population has a median age of 28 years and around two-thirds are in the 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, it added.

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