Despite trade wars and ongoing tensions from the conflict in the Middle East, the Indian economy has shown resilience. Rating agency Moody’s has sharply raised India’s GDP growth for the financial year 2026-27 (FY27) from 6 per cent to 7 per cent, considering India’s economic stability. Moody’s believes that despite Middle East shock and geopolitical tensions, India’s growth rate will remain the fastest among G20 countries and equivalent economies.
In a statement issued after a periodic review of India’s ‘Baa3’ sovereign rating, Moody’s said the “muted” fiscal policy response to the Middle East shock reflects the government’s commitment to reducing the fiscal deficit to 4.3 per cent of GDP in the current fiscal year, from 4.4 per cent in FY26.
Blistering 8.2% growth rate in the first half of 2026
The agency has raised the forecast during its periodic review of India’s sovereign rating. According to the data, India’s GDP growth rate was 8.2 per cent in the first six months of calendar year 2026, up from 7.3 per cent in 2025. The agency said that the strong growth in private consumption supported the economy. Strong fixed investment and continued government infrastructure spending also helped. In addition, the services sector has continued to perform strongly. A possible improvement in private investment is also considered good for the economy.
Threat from elevated oil prices and inflation remains
Moody’s has also expressed some caution about future economic health. The agency says that due to unresolved conflict in the Middle East and high crude oil prices, average inflation could reach 4.8 per cent in fiscal 2027, up from 2.4 per cent in fiscal 2026. Furthermore, rising food prices due to El Nino, increased energy and fertiliser import costs, and a decline in remittances from abroad could widen the current account deficit (CAD), which could somewhat impact growth.
Efforts are underway to reduce the fiscal deficit
On fiscal policy, Moody’s stated that the Indian government has maintained fiscal discipline despite global shocks. The government aims to reduce the central budget deficit from 4.4 per cent to 4.3 per cent. However, energy subsidies, rising defence spending, and continued infrastructure investment may exert some fiscal pressure on the government. Despite this, India’s fiscal numbers are expected to gradually improve, supported by strong nominal GDP growth and improved tax collection.
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