Moody’s raises India FY27 growth forecast to 7%, flags inflation risks | Economy & Policy News

Moody’s Ratings on Friday raised its forecast for India’s real gross domestic product (GDP) growth in the current financial year to 7 per cent from 6 per cent projected earlier, citing stronger-than-expected economic activity and resilience to the global shock from the West Asia war.

 

“The economy’s demonstrated resilience to the global shock wrought by the conflict in the Middle East has driven an upward revision to our forecast for real GDP growth in fiscal 2026-27 (year ending March 2027) to 7.0% from 6.0% previously,” Moody’s Ratings said in its periodic review report.

 

But the rating agency has also flagged inflation concerns for the Indian economy due to the conflict.

  

“Looking ahead, in the absence of an enduring resolution to the conflict in the Middle East, elevated energy prices could push annual average inflation beyond our projection of 4.8 per cent for fiscal 2026-27, which is already significantly higher than the 2.4 per cent outturn in fiscal 2025-26, while El Nino-related disruptions could increase food price pressures, weighing on private consumption and economic activity,” Moody’s said.

 

The rating agency’s growth projection for India is higher than those of most other agencies as well as that of the Reserve Bank of India (RBI), which has estimated growth of 6.7 per cent.

 

The rating agency said India’s real GDP growth accelerated to 8.2 per cent year-on-year in the first six months of calendar 2026 (January to June), compared with 7.3 per cent for the full year in 2025. The stronger performance was driven by private consumption, robust gross fixed capital formation and sustained strength in services.

 

The Ministry of Statistics and Programme Implementation releases quarterly GDP growth prints for the financial year, which were estimated at 7.8 per cent for both January-March of 2025-26 (Q4FY26) and April-June of 2026-27 (Q1FY27).

 

The agency said continued public infrastructure spending and a likely revival in private-sector investment were supporting growth, alongside resilient consumption. It also highlighted India’s large and diversified economy, high growth potential, sound external position and stable domestic financing base as key strengths underpinning its sovereign credit profile.

 

Moody’s, however, retained India’s Baa3 long-term issuer rating and stable outlook. The rating agency said high general government debt, weak debt affordability and low per capita income continued to constrain the sovereign’s credit profile.

 

It does not expect a material reduction in India’s debt over the next two to three years, while elevated global and domestic interest rates are expected to keep debt affordability under pressure.

 

The agency expects India’s fiscal metrics to improve gradually over the medium term, supported by strong nominal GDP growth and efforts to improve tax administration and revenue collection. However, rising defence spending and continued infrastructure investment may constrain the pace of fiscal consolidation.

 

The government remains committed to reducing the central government fiscal deficit to 4.3 per cent of GDP in FY27 from 4.4 per cent in FY26, Moody’s said. It added that higher global energy prices could increase subsidy outlays and create pressure for additional support measures.

 

Higher energy and fertiliser import costs, softer external demand and weaker remittance inflows from West Asia could also widen the current account deficit and weigh on growth momentum, it said. India’s diversified crude import sources, sizeable foreign exchange reserves and strong domestic demand provide buffers against these risks.

 

Moody’s said the stable outlook reflected India’s gradually improving fiscal metrics and resilient growth prospects relative to peers. A material improvement in debt affordability, supported by durable revenue-raising measures, a narrower fiscal deficit and a more marked decline in debt, would strengthen the sovereign’s credit profile.

 

The Indian central government consolidated its fiscal deficit to 4.4 per cent of GDP in FY26 from a high of 9.2 per cent of GDP recorded in FY21 in the aftermath of the Covid-19 pandemic.

 

The agency also said structural reforms that lead to a significant pick-up in private investment, faster growth in GDP per capita and greater economic diversification, including in higher-value manufacturing and digital services, could support stronger assessments of India’s policy effectiveness and credit profile.