Moody’s Revises Forecast, Projects 7% Growth for Indian Economy in FY25

Moody’s has downgraded India’s GDP growth forecast for the fiscal year 2024-2025 to 7%, down from the previous year's 8.2%. This revision is attributed to a combination of global and domestic economic slowdowns, as well as weaker-than-expected performances in key sectors. This adjustment follows similar cuts by other major economic institutions such as the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Asian Development Bank (ADB), both of which also lowered their growth projections for India.

Moody’s Updated Growth Forecast
In its latest report, Moody’s revised India’s growth for FY25 to 7%, down from the impressive 8.2% in the previous fiscal year. This downgrade is reflective of slowing global and domestic economic conditions, compounded by geopolitical tensions, reduced global demand, and inflationary pressures.

However, Moody's pointed out that India's GDP per capita, in terms of purchasing power parity (PPP), rose by 11% year-on-year to $10,233 in FY2023, indicating an improvement in the standard of living, which remains a positive sign for the Indian economy.

Comparison with Other Economic Institutions
Moody’s revision follows similar cuts by other key organizations. FICCI, in its Economic Outlook Survey, reduced its growth estimate for FY 2024-25 from 7% to 6.4%, citing a notable deceleration in growth. The ADB, in December 2024, lowered its FY 2024 growth forecast to 6.5%, influenced by slower industrial growth and weaker government spending, and adjusted its FY 2025-26 projection to 7% from 7.2%.

Second-Quarter Growth Performance
India's GDP growth in Q2 FY24 also reflected a slowdown, dropping to 5.4% compared to prior expectations. The industrial sector, in particular, underperformed with just 3.6% growth in industrial output. However, the agriculture and services sectors showed resilience, growing at 3.5% and 7.1%, respectively. The slower industrial output is a key factor in the revised growth forecasts, as industrial recovery was expected to be a significant driver of FY25’s economic rebound.

External and Internal Challenges
India’s economic growth is further challenged by geopolitical uncertainties, impacting global trade and supply chains, particularly in sectors like automobiles, textiles, and electronics. Additionally, adverse weather conditions, such as unseasonal rains and droughts, are affecting agricultural productivity.

These factors, along with internal pressures such as high inflation, rising interest rates, and ongoing supply chain disruptions, are making the economic recovery more difficult than expected.

Inflation and Monetary Policy Impact
The Indian government and the Reserve Bank of India (RBI) have taken measures to address persistent inflation, including tightening monetary policies. However, these actions, especially interest rate hikes, have negatively impacted private investment and demand in sectors like housing. The RBI also revised its growth forecast for FY25 in December 2024 to 6.6%, further aligning with the overall economic slowdown.