India in a sweet spot: Moody's report highlights robust economic growth momentum amid inflation challenges

India’s economy is in a “sweet spot” from a macroeconomic standpoint, blending strong growth with easing inflation, according to a recent report by Moody’s. The ratings agency projected India’s Gross Domestic Product (GDP) to grow by 7.2% in 2024, followed by 6.6% in 2025 and 6.5% in 2026.

In the second quarter of 2024, India’s real GDP expanded 6.7% year-over-year, fueled by a resurgence in household consumption, increased investment, and solid manufacturing activity.

Indicators of economic health, including positive manufacturing and services PMIs, robust credit growth, and consumer optimism, point to continued growth in the third quarter starting September.


The report further highlighted that the household spending is expected to remain strong, buoyed by festive season purchases and rising rural demand as agriculture rebounds. Private investment- one of the key factors impacting GDP- is likely to be supported by increasing capacity utilization, strong business sentiment, and the government’s ongoing infrastructure investments, said the report.

Moody’s noted that India’s solid economic fundamentals, like healthy corporate and bank balance sheets, a resilient external position, and robust foreign exchange reserves, bolster the outlook.

Food inflation woes

As per the report, food price volatility remains a concern, as headline inflation recently surged to 6.2% in October due to a spike in vegetable prices, surpassing the Reserve Bank of India’s (RBI) tolerance band of 4% (+/-2%).

Moody’s report suggested that inflation will moderate in the months ahead, aided by higher sowing and ample grain reserves. Yet, the RBI is expected to maintain its cautious stance, keeping interest rates relatively steady given persistent inflationary risks from global tensions and weather uncertainties, it said.

According to a Reuters report, India's headline inflation has averaged 5% over the past 12 months, but food inflation has held above 8% as weather shocks elevated prices of vegetables, cereals and other essential foods. In October, retail inflation hit a 14-month high of 6.2% while food prices jumped to 10.9%.