Moody's, the global rating agency, has revised its GDP growth projection for India in 2024, raising it to 6.8% from the previous estimate of 6.1%. This upward revision comes as a result of India's robust economic performance in 2023 and the diminishing global economic challenges. The country's economy exceeded expectations by growing at 8.4% during the October-December quarter.
Factors Contributing to Growth
The significant boost in economic growth during the last quarter can be attributed to the government's capital spending and the vigorous manufacturing activity. Moody's report highlights that expanding manufacturing and services, along with rising goods and services tax collections, credit growth, and positive sentiment among consumers, indicate a strong economic momentum.
Gross Value Added (GVA) and GDP Discrepancy
While the GDP growth rate displayed impressive figures, economists have pointed out a divergence between the Gross Value Added (GVA) and GDP data. The GVA, which measures the total value of goods and services produced in the economy, excluding indirect taxes and subsidies, grew at a slower pace of 6.5%. This discrepancy is mainly due to a sharp fall in subsidies during the October-December quarter, particularly in fertilizer subsidies like Urea. Analysts suggest that the GDP data may overstate the actual growth trends.
Future Growth Outlook
Moody's predicts that India's GDP growth will continue to outpace other G-20 economies in 2024. The agency expects the economy to grow at 6.8% in the coming year, while the GDP growth for 2025 is estimated at 6.4%. The agency cites factors such as robust goods and services tax collections, rising auto sales, and positive consumer sentiment as indicators of a resilient urban consumption demand. Additionally, the government's focus on infrastructure development and policy continuity, along with ongoing supply chain diversification, are expected to drive private industrial capital spending.
Election Year and Geopolitical Impact
The year 2024 is an election year for several G-20 countries, including India, and Moody's highlights the potential implications of elections on domestic and foreign policies. The agency states that leaders elected this year will influence policies for the next few years, and businesses are responding to evolving geopolitical dynamics by reorganizing supply chains and capital sources. Moody's emphasizes that geopolitical realities will shape international trade flows, capital flows, migration trends, and international organizations in the years to come.
Challenges and Outlook
While India's economic growth remains resilient, economists point out that private consumption and private capital expenditure continue to remain subdued. The sustainability of investment growth in the medium-term depends on strengthening consumption growth. The escalation of global geopolitical tensions and slowing external demand pose further downside risks to the external sector. However, Moody's report remains optimistic about India's economic performance and expects a continued focus on infrastructure development.
As India enters an election year, the impact of domestic and foreign policies on the economy will be closely watched. Overall, Moody's expects India to maintain its position as the fastest-growing economy among G-20 nations.
