Moody’s Raises India’s FY2026-27 Growth Forecast to 7% as Economy Shows Resilience Amid Global Shocks

Moody’s Ratings has raised its forecast for India’s real GDP growth in FY2026-27 to 7%, up sharply from its earlier projection of 6%, citing stronger-than-expected economic activity and the economy’s resilience despite global geopolitical and energy-market disruptions.

The revised forecast was released on 18 September 2026 as part of Moody’s periodic assessment of India. The ratings agency said India had demonstrated greater resilience than previously expected to the economic shock generated by the conflict in West Asia, prompting it to revise its growth estimate upward by a full percentage point.

The revision comes after India recorded real GDP growth of 7.8% during the April-June quarter of FY2026-27, supported by strong investment activity, manufacturing and domestic demand.

Moody’s Raises Growth Estimate by One Percentage Point

Moody’s had earlier projected that the Indian economy would expand by around 6% during FY2026-27. The agency has now lifted that estimate to 7%, reflecting stronger economic performance during the opening months of the financial year.

The scale of the revision is significant because forecasting agencies normally adjust their projections in relatively small increments unless incoming economic data materially changes the outlook.

Moody’s said the upward revision reflected India’s demonstrated ability to absorb external shocks while maintaining domestic economic activity.

The agency continues to expect India to grow faster than the other major G20 economies and faster than many emerging-market sovereigns with comparable credit ratings.

Strong Q1 Growth Provides the Immediate Backdrop

India’s official GDP data provide the immediate context for Moody’s revision.

According to the Ministry of Statistics and Programme Implementation, real GDP reached ₹81.36 lakh crore during the April-June quarter of FY2026-27, compared with ₹75.46 lakh crore during the corresponding quarter of the previous financial year.

This translated into year-on-year real GDP growth of 7.8%.

Real Gross Value Added grew even faster at 8.2%, increasing from ₹68.21 lakh crore to ₹73.82 lakh crore during the same period.

The first-quarter performance exceeded the Reserve Bank of India’s earlier estimate of 7% growth for the quarter and represented one of the strongest opening quarters recorded in recent years.

Investment Emerges as an Important Growth Driver

Investment was one of the strongest contributors to growth during the first quarter.

Real gross fixed capital formation increased by 11.9% compared with the same quarter of the previous year. This measure captures investment in areas such as machinery, infrastructure, construction and productive assets.

The strong increase indicates that capital formation remained an important component of economic growth alongside consumption.

Public infrastructure spending has continued to support investment, while private-sector capital expenditure has also shown signs of strengthening across manufacturing, logistics, energy, digital infrastructure and other sectors.

This investment momentum was one of the factors supporting the stronger growth assessment.

Household Consumption Continues to Expand

Household consumption also remained supportive of growth.

Private final consumption expenditure increased by 7.1% in real terms during the first quarter, indicating continued expansion in domestic consumer demand.

India’s large domestic market has historically provided an important buffer against fluctuations in external demand, and this role has become particularly significant during periods of global trade disruption and geopolitical uncertainty.

Moody’s assessment reflects this structural characteristic of the Indian economy, where domestic demand continues to account for a substantial share of economic activity.

Manufacturing and Services Support Expansion

Manufacturing and services played an important role in sustaining growth during the first quarter.

Official data showed that economic activity remained broad-based despite weakness in some segments such as mining and selected consumer-facing services.

Manufacturing benefited from improving investment demand, infrastructure activity, industrial credit growth and stronger production conditions, while several service sectors continued to expand.

The combination of manufacturing growth and relatively strong services activity helped offset weaker performance elsewhere in the economy.

Exports Also Record Strong Growth

India’s export performance strengthened during the opening months of FY2026-27.

Real exports increased by around 12% during the first quarter, while combined merchandise and services exports during April-July rose 13.16% year-on-year.

This performance came despite continuing uncertainty surrounding international trade, geopolitical tensions and disruptions to global supply chains.

The export growth adds another component to the broader economic expansion, although external demand remains more vulnerable than domestic consumption and investment to changes in global conditions.

West Asia Conflict Becomes a Major Economic Test

The continuing conflict in West Asia has emerged as one of the principal external risks confronting the Indian economy.

India imports a large proportion of its crude oil requirements, making the economy sensitive to sustained increases in international energy prices.

Higher crude prices can affect the country through several channels. They can increase the import bill, widen the current account deficit, raise transport and production costs and contribute to inflation.

The conflict can also affect shipping routes, insurance costs and the price of other imported energy products.

Moody’s nevertheless concluded that the Indian economy had so far demonstrated greater resilience to these pressures than anticipated in its earlier forecast.

High Energy Prices Remain the Largest External Risk

The agency cautioned that the improved growth outlook should not be interpreted as an absence of risks.

Persistently elevated international energy prices could increase inflationary pressure and eventually weaken household purchasing power.

Higher fuel and transport costs can spread through the economy by raising the cost of moving goods, manufacturing products and delivering services.

Energy prices also have fiscal implications. If the government increases subsidies or other forms of support to shield households and businesses from higher international prices, expenditure pressures could rise.

Moody’s therefore identified prolonged energy-price elevation as one of the principal risks to the revised growth outlook.

El Niño Creates a Second Inflation Risk

The second major risk identified by Moody’s is the possibility of higher food inflation associated with El Niño.

India’s agricultural output remains influenced by monsoon rainfall, and uneven precipitation can affect production of cereals, pulses, vegetables and other agricultural commodities.

Weak rainfall or unfavourable distribution can reduce crop yields and increase food prices.

Food inflation is particularly important in India because food products account for a substantial share of household expenditure and the consumer price index.

If El Niño conditions place additional pressure on agricultural production, higher food prices could reduce household disposable income and weaken consumption growth.

Inflation Could Rise Above Moody’s Current Projection

Moody’s currently expects inflation to average around 4.8% during FY2026-27.

The agency warned that a prolonged West Asia conflict combined with elevated energy prices and El Niño-related food pressures could push inflation above this level.

A sustained inflation increase could affect the economy through several channels. Consumers could reduce discretionary spending, businesses could face higher input costs and monetary policy could remain tighter for longer.

The interaction between energy inflation and food inflation will therefore be an important factor determining whether the economy can sustain the current growth momentum.

Fiscal Consolidation Could Become More Difficult

Moody’s also highlighted possible pressure on the government’s fiscal consolidation path.

India has been gradually attempting to reduce its fiscal deficit while maintaining high levels of capital expenditure on infrastructure.

Higher energy prices could complicate this process if subsidy expenditure rises or if additional fiscal support becomes necessary.

At the same time, spending requirements in areas such as defence and infrastructure remain substantial.

These competing demands mean that the government must balance fiscal consolidation with the need to sustain investment and protect the economy from external shocks.

Infrastructure Spending Remains a Key Support

Government capital expenditure continues to play an important role in India’s growth strategy.

Investment in highways, railways, ports, urban infrastructure, logistics, power networks and digital systems has expanded productive capacity while supporting construction and manufacturing.

Infrastructure investment also has a multiplier effect because it generates demand for cement, steel, engineering equipment, transport services and labour.

Moody’s noted that continued infrastructure spending supports the economy, although higher government expenditure must also be managed within the broader fiscal consolidation framework.

India Remains Among the Fastest-Growing Major Economies

The revised 7% forecast places India among the fastest-growing major economies in the world.

Moody’s expects India to grow faster than the other G20 economies as well as many emerging-market countries with similar sovereign credit ratings.

This relative growth advantage is supported by India’s demographic scale, domestic consumption base, infrastructure investment, digitalisation and expanding manufacturing capabilities.

However, relative outperformance does not eliminate external vulnerabilities, particularly those associated with energy imports and global commodity prices.

A Stronger Outlook With Important Conditions

The latest Moody’s revision represents a meaningful improvement in the assessment of India’s economic outlook.

The increase from 6% to 7% reflects stronger first-quarter growth, resilient domestic demand and continued investment activity despite geopolitical disruptions.

At the same time, the agency’s caution is equally important.

The sustainability of the revised growth trajectory will depend on how long global energy prices remain elevated, how severely El Niño affects food production, whether inflation remains contained and whether the government can continue investing while progressing towards fiscal consolidation.

India entered FY2026-27 with stronger momentum than many forecasters had expected. The next phase will determine whether that momentum can be maintained while the economy absorbs the continuing effects of geopolitical uncertainty, high energy prices and climate-related risks.

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References

Moody’s Ratings — Periodic Review of India, 18 September 2026
https://www.moodys.com/

Ministry of Statistics and Programme Implementation / Press Information Bureau — Quarterly Estimates of Gross Domestic Product for Q1 FY2026-27, 31 August 2026
https://www.pib.gov.in/PressReleasePage.aspx?PRID=2304949

Press Information Bureau — India’s GDP Performance, 1 September 2026
https://www.pib.gov.in/FactsheetDetails.aspx?Id=150991

Reuters — Moody’s Raises India FY2026-27 GDP Growth Forecast to 7%, 18 September 2026
https://www.reuters.com/world/india/moodys-raises-india-fy27-gdp-growth-forecast-7-middle-east-resilience-2026-09-18/

Business Standard — Moody’s Raises India FY27 Growth Forecast to 7%, Flags Inflation Risks, 18 September 2026
https://www.business-standard.com/economy/news/moody-s-raises-india-fy27-growth-forecast-to-7-flags-inflation-risks-126091801027_1.html

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