NEW DELHI: S&P Global Ratings raised India’s GDP growth projections on September 23 for the current fiscal to 7 per cent, citing robust economic activity and forecasting that the Reserve Bank of India (RBI) could hike interest rates by 25 basis points in FY27.
In its Economic Activity for Asia Pacific report, S&P estimates consumer inflation to average 5.1 per cent in FY27.
The Indian economy grew higher than expected at 7.8 per cent in the June quarter. S&P said factors like robust industrial activity, healthy consumption, strong goods exports, and accelerating Government investment have driven the growth.
“We have consequently upgraded our GDP growth forecast for the current fiscal year, ending March 31, 2027, to 7 per cent, from 6.6 per cent previously,” S&P said, adding growth could ease in the second half of the fiscal as the tailwinds from General Sales Tax (GST) rationalisation and income tax cuts diminish.
Weather-related risks warrant close monitoring. Cumulative rainfall was 15 per cent below normal till September 9, in the current monsoon season. Agricultural output and food inflation therefore remain key variables to watch, it said.
“We expect the balance of considerations to shift toward higher interest rates. Factors supporting this shift include solid growth, persistent inflationary pressures, an unresolved conflict in West Asia, and weather-related risks. We expect consumer inflation to average 5.1 per cent and the Reserve Bank of India to raise its policy rate by 25 bps in the current fiscal year,” S&P added.
Recently, another global rating agency, Moody’s too, had raised India’s GDP growth forecast for the fiscal to 7 per cent – the fastest growth rate among all G20 economies.
The 7 per cent FY27 GDP growth estimate compares with 6.7 per cent projected by RBI and 6.4 per cent by Fitch Ratings.
The Indian economy grew at 7.8 per cent in the previous fiscal (2025-26).
ADB bullish too
Meanwhile, the Asian Development Bank (ADB) has also raised its forecast for India’s economic growth in the current fiscal to 7 per cent, up from 6.6 per cent projected in July, citing stronger-than-expected economic performance in the first quarter despite supply-side disruptions caused by West Asia crisis.
In its Asian Development Outlook (ADO) September 2026, the multilateral lender said, “The revision reflects India’s stronger-than-expected economic performance, with GDP expanding by 7.8 per cent year-on-year in the first quarter of FY2026 (2026-27), supported by robust investment demand, resilient consumption, and solid growth in manufacturing and service sectors.”
The economy has also benefited from lower-than-expected supply disruptions, sustained capital inflows, and limited pass-through of higher input cost to consumer prices, which helped cushion the impact of the conflict in the Middle East, the report said.
The ADB’s latest projection marks an upward revision of 0.4 percentage points from its July forecast of 6.6 per cent for FY2027.
Despite supply disruptions and high commodity prices, India’s economy continues to demonstrate resilience, supported by strong infrastructure spending and growth-supporting fiscal and monetary policies, said ADB Country Director for India Mio Oka.
“Continued strength in the services sector, including AI-related investments, alongside improvements in agricultural productivity and steady manufacturing growth, will help sustain the growth momentum,” she said.
ADB now projects FY28 growth at 7.1 per cent, slightly lower than its earlier forecast of 7.3 per cent, largely reflecting a stronger GDP base.
Recently, another global rating agency, Moody’s too, had raised India’s GDP growth forecast for the fiscal to 7 per cent – the fastest growth rate among all G20 economies. The 7 per cent FY27 GDP growth estimate compares with 6.7 per cent projected by RBI and 6.4 per cent by Fitch Ratings.
Beyond the temporary impact of higher fuel prices and inflation, domestic demand is expected to remain the main engine of growth in both FY27 and FY28, supported by robust tax collections, low interest rates, rising household incomes, and the anticipated revision of government salaries and pensions in the next financial year, it said.
With regard to inflation, the report said, though it has steadily risen recently, the forecast for FY27 has been lowered from 5.2 per cent to 5 per cent, as the rise has been more gradual and previously anticipated.
Inflation is expected to decline to 4 per cent in FY28, same as forecast in July, as energy prices are anticipated to moderate and agricultural supply recover under a normal monsoon assumption, it said.
While inflation is expected to remain within the Reserve Bank of India’s target range, the central bank may consider raising the repo rate if inflationary pressures intensify.
Strong public spending remains a key growth driver, with Central Government capital expenditure rising 29.9 per cent in the first quarter of the current financial year and on track to meet its 11.5 per cent annual target, it said.
The report emphasised that the private investment is expected to pick up, supported by Government measures to enhance the investment climate, including improvements in logistics infrastructure, regulatory reforms, and a strong pipeline of projects.
Despite higher fertiliser subsidy spending and fuel tax cuts, it said, the fiscal deficit is expected to stay around 4.3 per cent of GDP, supported by robust direct tax revenues and additional receipts from oil export taxes and precious metals duties.
The current account deficit is projected to expand in FY27 due to higher commodity prices before narrowing in FY28, aided by lower oil prices and strong export growth. Foreign exchange reserves rose to USD 740.8 billion, helped by RBI’s measures to attract foreign capital, it said.
The report noted key risks to future growth on account of prolonged geopolitical uncertainty, and weather disruptions linked to El Nino, a climate phenomenon that can increase temperatures and decrease rainfall.
These risks may lower agricultural output and raise industrial input costs.
However, it said, services and construction are likely to remain robust in the current financial year and the next year.
