Moody's raises India fiscal 2027 GDP growth forecast to 7% on Middle East resilience

Moody's, a credit ratings agency, has increased India's real GDP growth forecast for fiscal year 2027 to 7% from the previously estimated 6%. The agency attributed this upward revision to India's resilience amidst the ongoing Middle East conflict. However, Moody's cautioned that there are still risks involved, as elevated energy prices and El Niño-related food price pressures could negatively impact inflation, consumption, and overall growth.

While India's fiscal response to the Middle East shock has been relatively restrained, the agency warned that higher global energy prices could lead to increased subsidy spending and potentially pressure the government into providing additional support. Moreover, rising defense and infrastructure spending might impede fiscal consolidation efforts.

Recent government data revealed that India's economy expanded by 7.8% in the April-June quarter, surpassing expectations. This robust growth was driven by a surge in investment and manufacturing activity, which counterbalanced weakness in the mining sector and consumer-facing services.