Delhi. There is good news for the Indian economy. International rating agency Moody's has increased India's economic growth estimate for the current financial year from 6.5 percent to seven percent. Rating agency Moody's on Wednesday increased India's economic growth forecast for the current financial year to seven percent from 6.5 percent. The agency said the growth rate estimate has been raised considering the pick-up in macroeconomic activities and India's ability to absorb energy supply shocks.
Consumption and investment will give impetus to the economy
Moody's Ratings said in its 'Global Outlook 2027-28' report that risks to economic growth remain in the near term. Domestic consumption remains vulnerable to rising and pervasive inflationary pressures. Retail inflation is near the upper end of the Reserve Bank of India's (RBI) target band of two to six per cent.
Inflation and El Nino become a challenge
The rating agency said the lack of south-west monsoon and strengthening El Nino conditions could impact agricultural production and rural demand. Moody's said, “Given strong consumption, improving investment conditions and strong macroeconomic fundamentals, the Indian economy appears to be in a position to maintain growth rate of around seven per cent over the medium term.”
Increasing private investment will open the way for development
According to Moody's, the rise in production and import of capital goods, increase in industrial credit and better utilization of production capacity of industries are indicating that a new phase of private investment may begin in India. The agency's previous estimate was 6.5 percent growth. He said a sustained surge in private investment could provide a significant boost to manufacturing, employment and productivity, pushing economic growth even higher than its baseline estimate.
India showed strength in dealing with energy crisis
However, the agency cautioned that tight monetary policy amid the possibility of further interest rate hikes by the RBI could slow down the recovery in private investment. Moody's said India has weathered energy price shocks better than previously estimated. State petroleum marketing companies with the ability to diversify sources of supply of crude oil and gas and tax cuts have helped protect consumers from immediate price increases. The agency said that India is home to the world's largest integrated oil refining complex.
GST and vehicle sales also saw a rise
The country's large and modern oil refining capacity has helped it remain a major exporter of refined petroleum products while limiting fuel supply disruptions. The US-based rating agency said high-frequency indicators such as strong capital goods production and imports, a pick-up in industrial credit growth and an uptick in capacity utilization suggest that India may be nearing the beginning of a new round of private capital expenditure after several years of improving the balance sheets of companies and the banking sector. It said macroeconomic activity also remained strong amid expansion in Purchasing Managers' Index (PMI) for manufacturing and services sectors and double-digit YoY growth in Goods and Services Tax (GST) revenues, vehicle sales and merchandise exports.