Indian Economy Projected to Grow at 7% in FY25: Moody’s Revises Forecast

The global ratings agency Moody’s has downgraded India’s economic growth forecast for the fiscal year 2024-2025 to 7%, down from the 8.2% growth recorded in the previous fiscal year. This revision reflects a combination of domestic and global economic slowdown and a weaker-than-expected performance in key sectors. The revised forecast aligns with the trend observed in other major economic organizations, including the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Asian Development Bank (ADB), which have also lowered their growth projections.

Moody’s Economic Growth Forecast for India

In its latest report, Moody’s has revised India’s GDP growth for FY25 to 7%, signaling a decline from the impressive 8.2% growth in the previous year. The downgrade comes amid a slowdown in both global and domestic economic conditions, with rising concerns over geopolitical tensions, slower global demand, and inflationary pressures.

Despite the slowdown, Moody’s highlighted that India’s GDP per capita at purchasing power parity (PPP) increased by 11% year-on-year, reaching $10,233 in FY 2023. This marks a significant improvement in the standard of living, with the growth in per capita income being a positive indicator for the Indian economy.

Comparison with Other Economic Organizations

Moody’s revision follows similar adjustments made by other key economic institutions. For instance, FICCI, in its Economic Outlook Survey, also reduced India’s GDP growth estimate for FY 2024-25, from 7% to 6.4%, citing the slowdown in growth compared to the previous fiscal year’s performance. FICCI’s report indicated that the country is facing a notable deceleration in growth, which is aligned with the general trend of global economic slowdown.

Furthermore, in December 2024, the Asian Development Bank (ADB) lowered its growth projection for FY 2024 to 6.5%, citing slower industrial growth and weaker government spending as key factors. The ADB also revised its FY 2025-26 forecast to 7% from an earlier projection of 7.2%, reflecting subdued private investment and the adverse impact of tight monetary policies on housing demand.

Economic Growth Performance in Q2

India’s second-quarter GDP growth for the fiscal year 2024-25 also reflected a slower pace than expected, with growth slipping to 5.4% compared to previous estimates. A major factor behind this slowdown was the weaker performance in the industrial sector, where industrial output grew by just 3.6% year-on-year. The agriculture and services sectors, however, showed resilient growth, with agriculture growing at 3.5% and services expanding at 7.1%.

This slowdown in industrial output is one of the key reasons for the revision in growth forecasts, especially as industrial growth was expected to be a major contributor to economic recovery in FY25. However, the continued strength of the services sector, particularly in areas like IT and finance, remains a bright spot for the Indian economy.

Geopolitical Uncertainties and Weather Impact

India’s economic growth trajectory is also being challenged by geopolitical uncertainties, which are having a significant impact on supply chains and global trade. The ongoing global tensions and trade disruptions are hampering India’s export potential, especially in industries like automobiles, textiles, and electronics. Additionally, adverse weather conditions, particularly unseasonal rains and droughts, are complicating agricultural productivity, which is traditionally a major contributor to India’s GDP growth.

These external factors, coupled with the internal challenges of high inflation, interest rates, and supply chain disruptions, have contributed to the overall slowdown in the Indian economy, making the recovery process more challenging than anticipated.

Impact on Inflation and Monetary Policy

The Indian government and the Reserve Bank of India (RBI) have been taking measures to combat inflation, which has been one of the persistent challenges in recent years. However, tight monetary policies aimed at controlling inflation, including interest rate hikes, have had a negative impact on private investment and housing demand. These measures, while necessary for controlling inflation, have created a drag on growth, particularly in consumer demand and construction sectors.

The RBI also revised its economic growth projection for FY25 in December 2024, lowering it to 6.6%, down from the earlier estimate of 7.2%. This reduction in growth forecast aligns with the overall trend of economic slowdown and reflects the caution being exercised by policymakers in the face of rising economic pressures.

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