New Delhi

Leading global rating agency, Moody's, has raised the bar for India's economic prowess, revising its GDP growth forecast for the fiscal year 2023-24 to an impressive 8 per cent.

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This projection is underpinned by India's strong government expenditure, robust domestic consumption, and its potential to capitalise on global trade shifts, particularly in the wake of companies diversifying away from China.

The upgraded forecast solidifies India's position as the fastest-growing economy among major G20 nations.

Moody's upgrades growth forecast

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Moody's outlook for India's economy manifests in the revised GDP growth forecast of 8 per cent for the fiscal year ending March 2024.

The agency emphasises that government capital expenditure and strong domestic consumption will be vital in propelling India's economic growth.

Furthermore, India is set to capitalise on increased global trade and investment opportunities as businesses  shift away from China.

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Economic strength and December quarter surge

According to a report by Mint, India's economic resilience is highlighted by the unexpected growth surge of 8.4 per cent in the December quarter, defying concerns of a slowdown.

The National Statistical Office's revised GDP estimates indicate higher growth for the first two quarters of the fiscal year.

Encouragingly, key indicators in manufacturing and services sectors, as indicated by the HSBC Flash India Composite Purchasing Managers’ Index (PMI), position India as one of the fastest-growing major economies.

Inflation trends and monetary policy

Moody's anticipates a downward trend in India's inflation rate, projecting a decline to 5.5 per cent in the fiscal year 2023-24 from the previous fiscal year's peak of 6.7 per cent.

This expectation of disinflation is considered a crucial factor supporting monetary easing.

Despite the Reserve Bank of India (RBI) maintaining a steady repo rate at 6.5 per cent, Moody's notes that the solid growth dynamics, coupled with inflation above the 4.0 per cent target, suggest a cautious approach towards policy easing.

Banking sector outlook

Beyond GDP growth, Moody's comprehensive report delves into the banking sector's outlook.

The agency foresees a continued reduction in non-performing assets (NPAs) as the operating environment improves.

The NPA ratio has already witnessed a decline to 3.2 per cent, indicating the banking sector's resilience.

Moody's expects banks to maintain strong capitalisation, with the ability to raise capital easily if needed.

The report also touches upon the profitability of banks, projecting healthy levels while acknowledging a marginal decline in Net Interest Margin due to deposit repricing.

This holistic assessment reinforces the strength and resilience of India's banking sector, a crucial pillar supporting the overall economic outlook.

(With inputs from PTI)