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Informist, Wednesday, Nov. 20, 2024

 

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--Moody's: See India ruling coalition to keep focusing on infra spending
--CONTEXT: Moody's comments in outlook on global sovereigns in 2025 
--Moody's: See India ruling coalition to keep boosting local manufacturing 
--Moody's: See India attractive for redirected China trade, investment flows
--Moody's: New coalition govt in India will complicate policymaking 
--Moody's: India defence spend to grow rapidly amid China, Pakistan tensions
 

 

NEW DELHI – India's improved investment climate will make it an attractive destination to capture trade and investment outflows from China, Moody's Ratings said in a report dated Monday. This will allow the National Democratic Alliance-led coalition government to continue its policy focus from its previous term, the agency said in its 2025 outlook for global sovereigns. 

 

"We also expect India's ruling coalition to keep focusing on infrastructure spending and boosting domestic manufacturing, as an improved investment climate makes it more attractive to trade and investment flows redirected from China," Moody's said in the report.

 

Narendra Modi returned as the prime minister for a third straight term in June, though his Bharatiya Janata Party failed to secure an outright majority in the Lok Sabha. This required the party to rely on regional allies of the NDA to form the government at the Centre. 

 

"New coalitions in South Africa and India will complicate policymaking," Moody's said. In 2025, governments will face hurdles to achieve their ambitious economic agendas and reduce debt, given social risks and geopolitical tensions, the ratings agency said. 

 

Especially with geopolitical flare-ups in Russia-Ukraine and West Asia, global military spending is set to surge. India's defence spending is also set to grow rapidly amid tensions with neighbours China and Pakistan, according to the report.

 

Interconnected risks – geopolitical, social and climatic – could complicate sovereign policymaking and expose countries to tail shocks in 2025, which could potentially weigh on growth, Moody's Ratings said. Emerging markets as a whole may gain from a restructuring of supply chains, but a return to protectionism in 2025 and other trade tensions by some countries may hurt export-oriented economies, the report said. 

 

On the other hand, gradual monetary policy easing by the US Federal Reserve and other central banks in developed economies will lead to more investor appetite for emerging market debt. India has already been a beneficiary – in 2024 so far, foreign inflows into India's debt have totalled over $17 billion amid its inclusion on global bond indices. Emerging-market governments will take advantage of favourable conditions in 2025 to refinance their maturing debt, Moody's said.

 

Last week, Moody's Ratings retained its GDP growth forecasts for India at 7.2% in 2024 and 6.6% in 2025. In addition, it also added a 6.5% growth projection for 2026. The ratings agency cut its CPI inflation projects for 2024 and 2025 by 20 basis points each to 4.8% and 4.6%, respectively. Even in 2026, Moody's Ratings sees India's consumer inflation averaging 4.5%, above the Reserve Bank of India's medium-term target of 4%.

 

"From a macroeconomic perspective, the Indian economy is in a sweet spot, with the mix of solid growth and moderating inflation," Moody's had said in the Global Macro Outlook for 2025-26 released last week. The RBI, which gives its forecasts in terms of the financial year, projects GDP growth at 7.2%, and CPI inflation at 4.5%, in 2024-25 (Apr-Mar).  End

 

US$1 = INR 84.42

 

Reported by Aaryan Khanna

Edited by Tanima Banerjee

 

 

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