Moody’s raises India’s GDP growth forecast for FY27 to 7%:Higher than IMF RBI estimates; economy remains strong despite West Asia tensions

Global rating agency Moody’s has raised its forecast for India’s GDP growth in the 2026-27 financial year from 6% to 7%. Moody’s said that despite the ongoing tensions and conflict in the Middle East, their impact on the Indian economy has been considerably lower than expected. According to Moody’s, the economy is advancing rapidly because of strong consumption in India, government spending on infrastructure, signs of improvement in private investment and the continued strength of the services sector. Moody’s forecast far exceeds those of the IMF, RBI and SP Moody’s new forecast is considerably higher than those of other major global and domestic financial institutions. While other agencies cut their forecasts earlier this year because of global uncertainties, Moody’s expressed greater confidence in India’s growth rate. Domestic demand and services sector become the main pillars of growth According to Moody’s report, domestic demand is the biggest factor behind India’s growth. Private consumption in the country has strengthened, while gross fixed capital formation has also continued to accelerate. Early signs of new investment in companies and the private sector are emerging. Meanwhile, activity in the services sector remains consistently strong, helping the economy recover from external shocks. Maintains Baa3 rating and ‘stable’ outlook Moody’s has maintained India’s sovereign credit rating at ‘Baa3’ and kept the country’s outlook ‘stable’. Moody’s said India’s economy is large and diversified. However, the government’s debt burden and low per capita income remain challenges. Crude oil prices and inflation remain a concern Moody’s has warned that although the GDP growth forecast has been raised, the risks have not been completely eliminated. However, India’s large foreign exchange reserves and diversified sources of crude oil will help shield it from these external shocks. The pace of reducing the government’s fiscal deficit may remain slow The report said the government remains committed to its target of reducing the fiscal deficit. It aims to bring it down from 4.4% last year to 4.3% in financial year 2026-27. However, if energy prices rise in the international market, the government may have to bear the subsidy burden. Moreover, government debt is unlikely to decline rapidly because of the need to spend on defence and infrastructure.