Moody's Forecasts India's Growth as the Highest Among Advanced and Emerging G20 Nations

Moody's Ratings stated on Tuesday that India's growth rate of 6.5% this fiscal year will remain the highest among both advanced and emerging G-20 nations, driven by tax reforms and ongoing monetary easing. The country is expected to continue attracting capital and remain resilient in the face of any cross-border capital outflows.

It said economic activity in the fastest-growing economies will slow slightly from high levels but remain strong this year | Image: Bloomberg

In its report on emerging markets, Moody's highlighted that these economies are "vulnerable to turbulence" due to shifts in US policies, which have the potential to reshape global capital flows, supply chains, trade, and geopolitics. However, large emerging markets have the resources to weather this volatility.

Moody's also noted that while economic activity in the fastest-growing economies is expected to slightly slow from high levels, it will remain robust in both the current year and the next. In China, exports, infrastructure investment, and growth in key high-tech sectors continue to be the primary drivers, although domestic consumption remains weak.

"India's growth will remain the highest of the advanced and emerging G-20 countries, supported by tax measures and continued (monetary) easing," Moody's forecasted a 6.5 percent growth for the 2025-26 fiscal year, slightly lower than the 6.7 percent growth projected for 2024-25.

It also expects inflation to average 4.5 percent in the current fiscal year (April-March), down from 4.9 percent in the previous fiscal.

In the 2025-26 fiscal year Budget, the government raised the income tax rebate to Rs 12 lakh from Rs 7 lakh, providing a tax relief of Rs 1 lakh crore to the middle class.

Additionally, the RBI reduced interest rates by 25 basis points to 6.25% in February. It is widely anticipated that the Reserve Bank's Monetary Policy Committee (MPC) will further lower rates during its review on April 9.

Moody's noted that uncertainty surrounding US policies could heighten the risk of capital outflows. However, large emerging markets like India and Brazil are better positioned to attract and retain global capital in risk-averse environments due to their sizable, domestically focused economies, deep domestic capital markets, moderate policy credibility, and substantial foreign exchange reserves.

"These attributes provide buffers against external financial pressures and, as a result, give investors confidence. India has a low external vulnerability indicator of 61 per cent, indicating its relatively lower susceptibility to external financial shocks," Moody's said.

It also noted that India has a larger share of external debt denominated in domestic currency, making it better protected against exchange rate risks.

Moody's also highlighted that while overall growth in emerging markets is expected to decelerate in 2025-26, it will remain robust, with significant variation across countries. Growth in the Asia-Pacific region will continue to be the highest, but its strong integration into global trade leaves it most vulnerable to US tariffs and the potential impact on growth.

"Large, diversified and domestically driven EM economies such as India and Brazil are more equipped than smaller peers to continue attracting capital and withstand any cross-border outflows. These two economies also have deep domestic capital markets and low external vulnerability indicators," Moody's said.

In contrast, smaller and more open economies, along with those holding a significant amount of debt in foreign currency, such as Argentina and Colombia, are more vulnerable to shifts in investor sentiment and currency fluctuations, according to Moody's.

(This Article was originally published by Business Standard)