Moody’s Projects India’s GDP Growth to Exceed 6.5% in FY 2025-26

Global credit rating agency Moody’s Ratings has projected that India’s economic growth will surpass 6.5% in the fiscal year 2025-26, up from 6.3% in FY 2024-25. The growth is expected to be driven by higher government capital expenditure, tax cuts to boost consumption, and monetary easing through interest rate cuts. However, Moody’s anticipates moderate deterioration in asset quality in the banking sector due to stress in unsecured retail loans, microfinance, and small business loans.

Key Highlights

GDP Growth Forecast

• Expected to exceed 6.5% in FY 2025-26, up from 6.3% in FY 2024-25.
• Driven by government capital expenditure, tax cuts, and interest rate reductions.
• India’s real GDP growth slowed to 5.6% in Q2 (July-September 2024) but rebounded to 6.2% in Q3 (October-December 2024).

Inflation and Interest Rates

• Average inflation expected to decline to 4.5% in FY 2025-26, down from 4.8% in FY 2024-25.
• RBI raised policy rates by 250 basis points (May 2022 to Feb 2023) to control inflation.
• RBI cut policy rate by 25 basis points to 6.25% in February 2025.
• Further rate cuts will be modest due to global uncertainties, including US trade policies and market volatility.

Banking Sector Outlook

• Moderate deterioration in asset quality expected due to stress in unsecured retail loans, microfinance, and small business loans.
• Profitability to remain stable despite a slight decline in Net Interest Margins (NIMs).
• Loan growth to slow to 11-13% in FY 2025-26, down from 17% average between March 2022 to March 2024, as banks aim to balance loan expansion with deposit growth.

Government and RBI Estimates

• Economic Survey’s GDP growth projection for FY 2025-26: 6.3% to 6.8%.
• Current fiscal GDP growth (FY 2024-25): 6.5% (as per official estimates).