Moody's has increased its forecast for India's real GDP growth in the fiscal year 2026-27 from 6 percent to 7 percent. This change is due to the resilience of the Indian economy against global shocks stemming from Middle Eastern conflicts. However, Moody's has warned about rising energy prices and financial pressures that could impact the forecasts.
India's Economic Growth and Supporting Factors
The credit agency, in its periodic review of India's sovereign ratings, announced that India's real GDP growth in the first half of 2026 has increased to 8.2 percent compared to the previous year. This growth is largely due to strong private consumption demand, robust fixed investments, continued public infrastructure spending, and the potential revival of private investment and sustained strength in the services sector.
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Moody's added, "The resilience of the Indian economy against global shocks stemming from Middle Eastern conflicts has raised our forecast for real GDP growth in the fiscal year 2026-27 to 7 percent." The agency also expects India to grow faster than other G20 economies and similarly rated developing countries.
Challenges and Risks Ahead
However, Moody's has warned that unresolved conflicts in the Middle East and high energy prices may keep the average annual inflation rate above the forecast of 4.8 percent for the fiscal year 27, while this figure was only 2.4 percent in the fiscal year 26.
Additionally, El Niño-related disruptions may increase price pressures on food and negatively impact private consumption and economic activities. Meanwhile, rising energy and fertilizer import costs, weak external demand, and reduced remittances from the Middle East could widen the current account deficit and slow down growth momentum.
In the fiscal policy arena, Moody's noted that the Indian government's response to shocks from Middle Eastern conflicts has been relatively limited, indicating the government's commitment to reducing the central budget deficit to 4.3 percent of GDP in fiscal year 27 from 4.4 percent last year.
Nevertheless, rising global energy prices could increase subsidy costs and create pressures for more supportive measures. Furthermore, increased defense spending and ongoing infrastructure investments could slow down the process of budget deficit reduction.
Moody's forecasts that India's financial indicators will gradually improve, driven by strong nominal GDP growth and efforts to strengthen tax management and revenue collection. The agency added that significant improvement in debt servicing capacity requires sustainable revenue growth, a reduction in the budget deficit, and a substantial decrease in government debt.
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