India's growth to be highest among emerging G20 nations: Moody's

Moody's Ratings on Tuesday said India's growth at 6.5% this fiscal will remain the highest among the advanced and emerging G20 countries, supported by tax measures and continued monetary easing, and the country will continue to attract capital and withstand any cross-border outflow.

In its report on emerging markets, Moody's said such economies are "exposed to choppy waters" from the churn of US policies and its potential to reshape global capital flows, supply chains, trade and geopolitics. Large emerging markets have resources to navigate the turbulence.

It said economic activity in the fastest-growing economies will slow slightly from high levels but remain strong this year and next. In China, exports and investment in infrastructure and priority high-tech sectors remain the main growth drivers, while domestic consumption remains weak.

"India's growth will remain the highest of the advanced and emerging G20 countries, supported by tax measures and continued (monetary) easing," Moody's said, while projecting a 6.5% growth for 2025-26 fiscal, down from 6.7% in 2024-25.

It projected inflation to average 4.5% in the current fiscal (April-March) from 4.9% in the last fiscal year.

The government, in the Budget for FY25-26, has hiked the IT rebate to Rs 12 lakh from Rs 7 lakh, which gave tax relief of Rs 1 lakh crore to the middle class.

Besides, the Reserve Bank of India (RBI), in February, had cut interest rates by 25 basis points to 6.25%. It is widely expected that the RBI's monetary policy committee (MPC) will cut rates again in its monetary policy review on April 9.

Moody's said the uncertainty in US policies would increase the risk of capital outflows but large emerging markets, such as India and Brazil, are better positioned to attract and retain global capital in risk-averse conditions because of their large and domestically oriented 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%, indicating its relatively lower susceptibility to external financial shocks," Moody's said.

It further said that India has a higher proportion of domestic currency-denominated external debt and is better insulated from exchange rate risks.

Moody's further said that emerging market growth will slow in the aggregate in 2025-26 but remain solid, with wide variation by country. Growth will remain highest in Asia-Pacific, but the region's integration in global trade means it is most exposed to US tariffs and their potential to slow 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.

By contrast, smaller and more open economies are more exposed to fluctuations in investor sentiment and currency volatility, as are economies with a large share of debt denominated in foreign currency, such as Argentina and Colombia, Moody's added.