Moody’s Ratings on Friday raised its forecast for India’s real gross domestic product (GDP) growth in 2026-27 (FY27) to 7 per cent from 6 per cent, citing stronger-than-expected economic activity and the economy’s resilience to the global shock from the West Asia conflict. The rating agency, however, warned that prolonged conflict and elevated energy prices could push inflation above its 4.8 per cent FY27 projection.
“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 FY27 to 7 per cent from 6 per cent previously,” Moody’s said in its periodic review of India.
Moody’s forecast is higher than those of most other agencies and the Reserve Bank of India (RBI), which has projected 6.7 per cent growth for FY27.
The rating agency said real GDP growth accelerated to 8.2 per cent year-on-year in the first six months of calendar 2026, compared with 7.3 per cent for the full year in 2025. Strong private consumption, robust gross fixed capital formation and sustained services activity drove the performance.
Moody’s said continued public infrastructure spending and a likely revival in private-sector investment were supporting growth, alongside resilient consumption. It also cited India’s large and diversified economy, high growth potential, sound external position and stable domestic financing base as strengths underpinning its sovereign credit profile.
However, Moody’s retained India’s Baa3 long-term issuer rating and stable outlook, saying 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 could 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. Higher global energy prices could increase subsidy outlays and create pressure for additional support measures, it added.
On inflation, Moody’s said the absence of an enduring resolution to the conflict in the Middle East could keep energy prices elevated and push annual average inflation above its 4.8 per cent FY27 projection, which is already significantly higher than the 2.4 per cent recorded in FY26. El Niño-related disruptions could also increase food-price pressures, weighing on private consumption and economic activity.
Higher energy and fertiliser import costs, softer external demand and weaker remittance inflows from West Asia could widen the current account deficit and weigh on growth momentum, the agency said. India’s diversified crude import sources, sizable foreign exchange reserves and strong domestic demand provide buffers against these risks.
Moody’s said its 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 government has consolidated its fiscal deficit to 4.4 per cent of GDP in FY26 from a high of 9.2 per cent in FY21 in the aftermath of the Covid-19 pandemic.
The agency also said structural reforms that lead to a significant pickup 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.
