Global rating giant Moody’s Ratings on Friday raised its forecast for India’s real gross domestic product (GDP) growth to 7 per cent for the current fiscal year, up from its earlier estimate of 6 per cent, citing the economy’s resilience amid the ongoing West Asia conflict. (Representational Image: DC)

 New Delhi: Global rating giant Moody’s Ratings on Friday raised its forecast for India’s real gross domestic product (GDP) growth to 7 per cent for the current fiscal year, up from its earlier estimate of 6 per cent, citing the economy’s resilience amid the ongoing West Asia conflict. However, it flagged risks to inflation due to elevated energy prices that could push annual average inflation beyond its 4.8 per cent projection for the fiscal.

The projection of the rating agency came after the government announced a sharp economic growth recently, saying that despite global headwinds, India’s economy expanded 7.8 per cent in the April-June quarter of FY 2026-27, up from revised 6.9 per cent in the same quarter last year, sharply exceeding economists’ expectations.

In a statement issued after a periodic review of India's ‘Baa3’ sovereign rating, Moody's also said that the muted fiscal policy response to the Middle East shock reflects the government's commitment to reducing fiscal deficit to 4.3 per cent of GDP in the current fiscal, from 4.4 per cent in FY26.

“The Indian 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 percent from 6 percent previously,” 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, helped by stronger private consumption, infrastructure investments, and sustained strength in the services sector.

“Although we continue to expect India to grow faster than all other G20 economies, as well as similarly rated emerging market sovereigns, risks still remain there. Elevated energy prices could push annual average inflation beyond its 4.8 per cent projection for the fiscal. Also, El Nino-related disruptions could increase food price pressures, weighing on private consumption and economic activity,” Moody's warned.

Since the beginning of the war in West Asia on February 28, crude oil prices have risen significantly, stoking inflation fears. Crude prices have risen over $100 per barrel this month, from about $73 level before the war. “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.

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. The US-based rating agency also said it expects India's debt reduction to be gradual and debt affordability to be constrained by elevated global and domestic interest rates, particularly as central banks maintain a cautious policy stance amid heightened geopolitical uncertainty and persistent inflation risks.

“We continue to expect the gradual improvement in fiscal metrics to continue over the medium term, supported by strong nominal GDP growth and continued efforts to improve tax administration and revenue collection,” Moody's said.

Tags: