Economy: India’s growth in FY26 to exceed 6.5%, says Moody’s Ratings
Virendra Pandit
New Delhi: Painting a rosy picture ahead, Moody’s Ratings on Wednesday said India’s economic growth will exceed 6.5 percent in the current financial year FY26 (2025-25), the media reported.
Following a temporary slowdown in mid-2024, India’s economic growth is expected to reaccelerate and record one of the fastest rates among large economies globally, it said.
Even the Union Finance Ministry’s Economic Survey projected GDP growth for FY26 at 6.3 to 6.5 percent. As per official estimates, GDP growth in the current fiscal would be 6.5 per cent.
Moody’s revised its rating upwards to over 6.5 per cent in the next fiscal, up from 6.3 percent in FY25, on higher government capex and consumption boost from tax cuts and interest rate reduction.
Projecting a stable outlook for the banking sector, the rating agency said although the operating environment of Indian banks will remain favourable in the next fiscal, their asset quality will deteriorate moderately after substantial improvements in recent years, with some stress in unsecured retail loans, microfinance loans and small business loans.
Banks’ profitability will remain adequate as declines in net interest margins (NIMs) are likely to be marginal amid modest rate cuts, it said.
“Government capital expenditure, tax cuts for middle-class income groups to boost consumption and monetary easing will help India’s real GDP growth exceed 6.5 percent for fiscal 2025-26 from 6.3 percent in fiscal 2024-25,” Moody’s Ratings said.
India’s real GDP growth slowed to 5.6 percent in the July-September 2024 quarter before rebounding to 6.2 percent in the following quarter.
Moody’s expects India’s average inflation rate to decline to 4.5 percent in fiscal 2025-26 from 4.8 percent in the previous year.
Reports, quoting government data on Wednesday, said retail inflation based on Consumer Price Index (CPI) dipped to 3.61 percent in January 2025, the lowest after July 2024. And industrial growth based on the Index of Industrial Production (IIP) accelerated to 5 percent in January.
“There is a decline of 65 basis points in headline inflation of February 2025 in comparison to January 2025,” the Ministry of Statistics said. With inflation going below 4 percent, one more instalment of policy interest rate cut is near certain when the RBI’s Monetary Policy Committee (MPC) meets next month.
It said the year-on-year inflation rate based on All India Consumer Food Price Index (CFPI) for February 2025, vis-a-vis February 2024, was 3.75 percent (Provisional). Corresponding inflation rate for rural and urban remained 4.06 percent and 3.2 percent, respectively.
“A sharp decline of 222 basis point is observed in food inflation in February 2025 in comparison to January 2025. The food inflation in February 2025 is the lowest after May 2023,” it said.
The industrial growth for January 2025 was 5 percent as against 3.2 percent in December 2024. The growth rates of the three key sectors– mining, manufacturing and electricity– for January 2025 were 4.4 percent, 5.5 percent and 2.4 percent, respectively.
The Reserve Bank of India (RBI) had raised its policy rate by 250 basis points from May 2022 to February 2023 to tame inflation, which gradually led to increases in interest rates for borrowers. The central bank lowered its policy rate by 25 basis points to 6.25 per cent in February 2025.
“We expect further rate cuts to be modest, as the central bank takes a cautious stance amid global uncertainty around US trade policies, as well as associated market and exchange rate volatility, as represented by a strengthening of the US dollar against emerging market currencies in late 2024 and early 2025,” Moody’s said.
“We expect system-wide loan growth to slow to 11-13 percent in fiscal 2025-26 from an average of 17 percent for March 2022-March 2024 as banks seek to keep loan growth in tandem with deposit expansion,” Moody’s said.
