ADB raises India's FY27 GDP growth forecast to 7% on strong Q1 growth

Fitch Ratings has increased its forecast for India's GDP growth in the fiscal year 2026-27 to 6.9% from the previously estimated 6.4%, attributing the rise to robust expansion in the June quarter and the economy's resilience amid external shocks. However, the ratings agency anticipates a slowdown in growth momentum throughout the remainder of the fiscal year due to factors such as below-normal monsoon rains, rising inflation, and signs of decelerating manufacturing and services activity.

Fitch also expects the Reserve Bank of India (RBI) to raise its benchmark policy rate by 25 basis points in October 2026. The forecast upgrade aligns with projections from other major ratings agencies, with S&P Global Ratings also raising India's FY27 growth outlook to 7% and Moody's maintaining its 7% forecast. India's economy expanded by 7.8% in the June quarter of 2026, which Fitch highlighted as evidence of its capacity to withstand the economic disruptions caused by the US-Iran war, despite the deterioration in terms of trade during the first half of 2026.

While manufacturing and services are expected to grow at a slower pace, investment is projected to remain a key driver of growth, with private investment prospects looking more robust. Non-food credit growth reached 19% year-on-year in July. Fitch anticipates GDP to expand 6.9% during the current fiscal year, marking a 50-basis-point upgrade from its earlier forecast of 6.4% in June.

The combination of resilient demand, rising prices, and supply-side challenges is expected to shape the RBI's monetary policy trajectory, with a 25-basis-point rate hike to 5.5% expected in October 2026, followed by a further increase to 5.75% in early 2027, and a moderation back to 5.5% in 2028.