Moody’s has raised its forecast for India’s real gross domestic product (GDP) growth for fiscal 2027 to 7% from its earlier projection of 6%, citing the resilience of the Indian economy amid the ongoing conflict in the Middle East. The credit ratings agency said India has shown stronger-than-expected economic momentum despite external pressures, leading it to revise its growth expectations for the current fiscal year. Moody’s also maintained that India is expected to grow faster than other Group of 20 economies and similarly rated emerging-market sovereigns, although it highlighted several risks that could affect the outlook.
According to Moody’s, elevated energy prices remain a significant risk to India’s economic performance. Higher global energy costs can place additional pressure on inflation and household consumption while also affecting overall economic growth. The agency also pointed to potential food price pressures linked to El Niño conditions, which could add to inflationary pressures and influence consumer spending. These factors could become important for the broader growth outlook if higher energy and food costs persist and begin to weigh more heavily on domestic demand.
Moody’s said India’s fiscal policy response to the economic effects of the Middle East shock has so far been muted. However, the agency warned that a sustained increase in global energy prices could lead to higher government subsidy spending. Such an increase could require the government to provide additional support to households or other parts of the economy affected by rising costs. At the same time, higher defence and infrastructure expenditure could create additional pressure on the government’s efforts to consolidate its fiscal position.
The revised growth forecast comes after India recorded strong economic expansion in the April-June quarter. Government data showed that the economy grew 7.8% during the quarter, exceeding market expectations. The performance was supported by stronger investment and manufacturing activity, which helped offset weaker conditions in mining and consumer-facing services. The quarterly growth figure provided further evidence of continued momentum in key parts of the Indian economy and contributed to the agency’s decision to raise its full-year growth projection.
Moody’s said that despite the improved growth outlook, risks remain around inflation, consumption and economic activity. Energy markets remain particularly important for India because changes in global energy prices can influence domestic costs and government finances. If energy prices remain elevated, the resulting pressure could affect household purchasing power while also increasing the fiscal burden associated with subsidies. Food prices present another area of concern, particularly if weather-related pressures associated with El Niño contribute to higher agricultural and consumer prices.
The agency’s assessment also places India’s fiscal position within the wider economic environment created by increased geopolitical and spending pressures. Higher defence expenditure may be required in response to changing security conditions, while infrastructure spending remains an important component of economic activity. Moody’s noted that the combination of higher defence and infrastructure spending could constrain fiscal consolidation, creating a balance between supporting economic activity and maintaining progress on public finances.
With the latest revision, Moody’s now expects India’s real GDP growth to reach 7% in fiscal 2027, up from the previous 6% estimate. The agency said the country’s economic resilience has supported the stronger forecast despite external challenges, while also stressing that developments in global energy markets, food prices and government spending will remain important factors for the outlook. India’s recent 7.8% quarterly expansion, supported by investment and manufacturing, provides a stronger starting point for the fiscal-year projection, although the risks identified by Moody’s could influence growth and inflation conditions in the months ahead.
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