Why Moody’s Just Raised India’s GDP Growth Forecast To 7%

Moody's Ratings on Friday sharply raised India's GDP growth forecast for the current fiscal year to 7 per cent, from 6 per cent earlier, saying the economy has shown resilience to global shocks amid the Middle East conflict but flagged risks to inflation from elevated oil prices and El Niño impact.

In a statement issued after a periodic review of India's 'Baa3' sovereign rating, Moody's said it expects debt reduction to remain gradual and debt affordability to stay weaker, reflecting India's high debt burden and elevated interest cost structure.

Moody's said India's real GDP growth accelerated to 8.2 per cent year on year in the first six months of calendar year (CY) 2026, up from 7.3 per cent for the full year in CY 2025, supported by stronger private consumption, robust gross fixed capital formation that reflects continued public infrastructure spending and a likely revival of private sector investment, and sustained strength in the services sector.

"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 per cent from 6 per cent previously," Moody's said.

India is expected to grow faster than all other G20 economies, as well as similarly rated emerging market sovereigns, Moody's said, but warned of risks.

"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 Niño-related disruptions could increase food price pressures, weighing on private consumption and economic activity," it added.

While the increased diversification of India's crude import sources, sizeable foreign exchange reserves and strong domestic demand provide important buffers, higher energy and fertiliser import costs, softer external demand and weaker remittance inflows from the Middle East could widen the current account deficit and weigh on growth momentum more broadly, Moody's said.

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The fiscal policy response to the Middle East shock has been muted, reflecting the government's commitment to its target of reducing the central government deficit to 4.3 per cent of GDP in fiscal 2026-27 from 4.4 per cent the previous year, it added.

Moody's further said that the ''stable'' outlook on India's rating incorporates India's gradually improving fiscal metrics and resilient growth prospects compared with peers.

However, fiscal accommodation in the context of the uncertain global macroeconomic outlook, including revenue-eroding measures, could impede progress towards more material debt reduction and exacerbate already weak debt affordability, it added.

Earlier this month, Japanese credit rating agency JCR had upgraded India's sovereign rating to ''A-'', a feat achieved after a gap of 35 years, citing solid economic growth and a strong financial system.

Last month, two global rating agencies, S&P and Fitch, had affirmed India's investment-grade rating, citing a dynamic and fast-growing, robust economy with policy stability and high infrastructure investment. The Indian economy grew at 7.8 per cent in the June quarter of FY27, beating the 7 per cent GDP growth estimates by the RBI.

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