According to the ratings agency, low inflation rate has enabled the Reserve Bank of India (RBI) to cut interest rates by 50 basis points in early 2015 which has helped in easing pressure on the private sector
A week after it revised its outlook on India to positive from stable, international credit rating major Moody's pegged India's growth at 7.5 percent for 2015.
"India's economy is on a cyclical upswing. Forward looking indicators suggest domestic demand is gathering momentum," said Faraz Syed, associate economist, Moody's Analytics.
According to the ratings agency, low inflation rate has enabled the Reserve Bank of India (RBI) to cut interest rates by 50 basis points in early 2015 which has helped in easing pressure on the private sector.
"Lower rates as well as the government's infrastructure and disinvestment programs should provide a boost to domestic-oriented industries," said Syed.
The RBI had cut its repurchase rate by 25 basis points on January 15 and on March 4.
However, RBI Governor Raghuram Rajan, who conducted the first bi-monthly review of the monetary policy for the current fiscal year on April 7, decided to retain the policy rates.
The RBI made it clear that it will cut interest rates further only if it sees more robust containment of prices and commercial banks lowering the cost of housing, auto and corporate loans.
"Since most banks didn't reduce their lending rates until recently, the full impact of the rate cuts will probably be felt in the second half of 2015. Thus, consumer spending likely will get a bigger boost later this year," Syed said.
Rajan has projected a 7.8 percent growth for the current fiscal year, subject to a normal monsoon.
The rating agency's analysis suggests that the country's first quarter GDP (gross domestic product) growth will be around 7.3 percent on a year-on-year basis.
The growth projections come soon after Moody's had revised India's sovereign ratings outlook to positive from stable. Another ratings agency Fitch had reaffirmed its stable outlook on India.
The think-tank of rich nations, the Organisation for Economic Cooperation and Development (OECD), also endorsed high growth prospects for India.
Similarly, the Asian Development Bank (ADB) has also projected the country's growth at 7.8 percent in 2015-16 and at 8.2 percent in 2016-17.
On April 14, the World Bank had forecast India's growth accelerating to 8 percent in the next fiscal.
The ratings agency further noted the government's disinvestment plans as being a significant instrument in raising funds for infrastructure creation.
"Funds raised from disinvestments will be spent on developing India's ailing infrastructure. If revenues fall short, we expect the government to cut expenditure to meet its 3.9 percent deficit target for 2015-2016," Syed said.
"Lower government spending is a downside risk to our forecast over the coming year," Syed added.
For 2015-16 fiscal beginning April, the government has budgeted to collect Rs.69,500 crore through public sector disinvestment.
Recently, approximately 5 percent of the Rural Electrification Corp. was sold in early April. The share issue stood oversubscribed by 553 percent.
Moody's said that the India's current account deficit (CAD) is expected to remain steady in 2015 thanks to lower oil and gold prices.
India's CAD came down to $8.2 billion -- or 1.6 percent of the gross domestic product -- in the third quarter ended December 2014.
With the steep fall in oil prices the subsidy burden has been projected to come down from a high of Rs.1.39 lakh crore for 2013-14 to around Rs.80,000 crore in 2014-15.