Moody's projects Indian economy to grow 7.5% in next two years

Global rating agency Moody’s Investors Service has projected that Indian economy will grow 7.5 percent in the current as well as next year in real terms from 7.3 percent in 2015, on the back of private consumption growth. Moody's in its latest Global Macro Outlook 2016-17 has said that India’s overall economic growth is supported by robust consumer spending, which makes up 55% of aggregate demand in the economy and added that private spending will be supported by the implementation of the public sector salary increases, mandated by the 7th Pay Commission, and a rise in rural incomes, provided the forecast of a good monsoon is realized.

Moody's in its report has further said that the India, being a net importer of commodities, has benefited from falling prices and growth will be driven by rising consumption. But, for the growth momentum to be sustained, a continuous improvement in domestic private investment would be required. It added that sustained improvement in private investment was needed to maintain the momentum.  The report said that the monsoon this year will be crucial for inflation projections and interest rates and added that “Prevailing low headline inflation is expected to remain so, given the current forecast of a good monsoon season, and should allow the Reserve Bank of India to sustain its current accommodative stance”.

Referring to the pressure points, Moody’s had said that India has a strong GDP growth, but private investment remains weak. Modest exposure to trade in goods and a net-commodity importing status has shield the economy from external headwinds to some extent. It also pointed that investment spending fell in the last quarter of 2015, as did industrial output and capital utilisation rates remain low.

It also said that looking forward the impact of weaker commodity prices is likely to fade over time with the stabilization of commodity prices. It added that combined with the fact that external demand is likely to remain lackluster, a sustained improvement in domestic private investment would be required for the growth momentum to be sustained. For other markets, the report said that weak growth in emerging markets, driven by low commodity prices and waning export demand, will continue to act as a drag on the global economy this year.