India’s economic outlook for the current financial year has brightened despite the ongoing conflict in West Asia and elevated energy prices, with four major global institutions raising their forecasts for the country’s FY27 GDP growth on Wednesday.
S&P Global Ratings, Fitch Ratings, the Organisation for Economic Co-operation and Development (OECD), and the Asian Development Bank (ADB) now expect India’s economy to expand more rapidly than they had projected just a few months ago.
S&P and ADB each raised their FY27 growth forecasts by 40 basis points to 7%, while Fitch increased its projection by 50 basis points to 6.9%. The largest revision came from the OECD, which raised its forecast to 7.1%, from 6.3% earlier. Last week, Moody’s Ratings also raised its India growth forecast to 7%, from 6%.
The revised projections are significantly above the Reserve Bank of India’s (RBI) 6.7% growth forecast for FY27. The central bank is expected to revise its forecast in October after India’s economy expanded by a stronger-than-expected 7.8% in April-June. GDP growth for FY26 was also 7.8%.
All the four agencies, however, expect inflation to firm up in the country in the second half of the current financial year.
Fitch said that strong GDP growth in April-June indicates the Indian economy has shown resilience against the shock from the US-Iran conflict. India’s growth this year will be “supported by resilient consumption, healthy investment, and strong services exports, which are expected to offset the drag from higher energy costs and a weaker monsoon,” the ADB said.
Despite the upgrade growth projections, India’s GDP growth is seen slowing in the second half of FY27 as “tailwinds” from Goods and Services Tax (GST) and income tax cuts diminish, S&P said. Weather-related risks also warrant close monitoring, S&P said.
Fitch also expects growth to moderate over the remainder of the financial year. “PMI (Purchasing Managers’ Index) survey data point to a slower pace of expansion in both manufacturing and services; below-normal monsoon rains will weigh on growth in agriculture and rural demand; and rising inflation will constrain real incomes and consumer dynamics,” Fitch said.
Despite recent strong momentum, reduced purchasing power is also expected to weaken growth in India in the second half of FY27, before a gradual recovery takes place next year, the OECD said.
Beyond FY27, projections for India’s growth vary. While Fitch and OECD project India’s GDP growth slowing to 6.5% in FY28, S&P and ADB see it staying above 7%. For FY29, too, growth is seen between 6.5-7%.
“Growth will be steady in FY28, as the energy price shock unwinds. We expect GDP to rise by 6.5%, with consumer spending and investment driving growth,” Fitch said.
HIGHER INFLATION
Consumer price index (CPI) inflation is seen rising in India in FY27, with prices already on the rise because of higher energy and food prices, according to the four global organisations. CPI inflation hit a 20-month high of 4.8% in August, above the RBI’s medium-term target of 4% but still within the tolerance range of 2-6%.
S&P and ADB project retail inflation to average around 5% in FY27, up from 2.1% in FY26. OECD sees India’s CPI inflation at 4.7% this financial year. “India’s inflation is expected to firm up in the second half of this fiscal year as the cuts in the GST fade from the base and as higher input costs and an unfavorable monsoon weigh on prices,” the ADB said.
Fitch expects inflation to increase in the short term and then ease back towards the RBI’s target by end-2027.
RATE HIKES EXPECTED, BUT OUTLOOK UNCERTAIN
Higher retail inflation in FY27 is seen pushing the RBI’s Monetary Policy Committee (MPC) to raise interest rates. “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,” S&P said, which expects a 25-basis-point repo rate cut in FY27.
The RBI’s MPC left the repo rate unchanged at 5.25% in August but some economists expect the committee to lower the key interest rate as early as October.
Fitch, in contrast, expects the RBI to raise rates by 25 basis points to 5.5% in October, followed by a further increase to 5.75% in early 2027 before rates ease to 5.5% in 2028. “We expect the balance of considerations to shift toward higher interest rates,” S&P said, pointing to the combination of strong growth and persistent inflationary pressures.
India’s current account deficit is expected to widen moderately in FY27 before narrowing in FY28 as oil prices ease and new trade agreements support the external sector, ADB said.
“Given the combination of strong demand, price rises, and adverse supply developments, we expect the RBI to raise rates by 25 basis points in October this year to 5.5%. We then expect a further rise to 5.75% in early 2027 and then for rates to ease back to 5.5% in 2028,” Fitch said.
India’s current account deficit is expected to widen moderately this fiscal year before narrowing in FY28 on lower oil prices and new trade agreements, the ADB said.
ADB also projects India’s fiscal deficit to be in line with the Budget target of 4.3% of GDP. “Fiscal pressure from cuts to its excise duty on fuel and expanded subsidies is likely to be mitigated by a new tax on oil exports and higher duties on precious metals,” the ADB said.