Moody’s raises India FY27 growth forecast to 7% as economy weathers Iran war energy shock

Moody’s Ratings has raised India’s economic growth forecast for FY27 to 7% from 6.5%, citing broad-based economic resilience, robust domestic consumption and improving investment activity, alongside the economy’s ability to absorb the energy supply shock triggered by the Iran war.

The rating agency said India had adjusted to higher energy prices better than previously anticipated, supported by its ability to diversify crude oil and natural gas supplies and limit the immediate impact on consumers. State-backed oil marketing companies and tax cuts have helped cushion households and businesses from the energy price shock.

Also read: India in a 'sweet spot' amid oil volatility and currency dynamics: Kotak Neo's Anindya Banerjee


Strong consumption, improving investment and sound macroeconomic fundamentals should enable India to sustain growth close to 7% over the medium term, Moody’s said.

The revised outlook comes after India's economy expanded 7.8% year-on-year in the April-June quarter, exceeding market expectations. An investment boom and strong manufacturing activity added to resilient consumer demand, supporting growth despite external economic pressures.

Private investment recovery could gather pace

Moody’s said a combination of high-frequency economic indicators suggests India could be approaching a fresh private capital expenditure cycle.

Robust capital goods production and imports, accelerating industrial credit growth and rising capacity utilisation point to improving investment demand, potentially supporting a broader recovery in private sector spending.

A sustained pickup in private capital expenditure would strengthen the growth outlook by complementing consumption-led expansion and supporting industrial activity.

Also read: Easing global headwinds, lower crude oil prices may further lift rupee in coming months: Economists

Inflation, monsoon among key risks

However, the agency flagged several risks that could weigh on India's growth trajectory, including rising and broadening price pressures on household consumption, a deficient southwest monsoon that could hurt agricultural output and rural demand, and tighter monetary policy potentially delaying the recovery in private investment.

India's October retail inflation data, scheduled for release on Thursday, will offer a fresh indication of the extent of price pressures. Economists polled by Reuters expect headline consumer inflation to rise to 5.93%, close to the upper end of the Reserve Bank of India's tolerance band.

The RBI delivered its first interest rate hike in nearly four years in October. Markets currently expect a further 90 basis points of monetary tightening over the next 12 months, a development that could raise borrowing costs and weigh on consumption and investment.

(With inputs from Reuters)