S&P raises India's GDP growth forecast for FY2027 to 7% and expects RBI rate hike of 25 basis points

The confidence of major global agencies in the pace of India's economic growth continues to rise. The rating agency Standard & Poor's Global (S&P Global) has raised its forecast for India's growth, despite the complex global situation, high oil prices, and geopolitical tensions.

The agency increased the forecast for India's real GDP for the fiscal year 2026-27 from 6.6% to 7%. This increase came after economic indicators in the June quarter were better than expected. According to S&P, strong industrial activity, domestic consumption, goods exports, and government investments helped the economy, with consumption growth in India proving particularly resilient.

Investment activity in India also remains the strongest among leading economies in the Asia-Pacific region, allowing India to be considered one of the main growth drivers in the region.

Nevertheless, S&P warns of some future challenges. The agency forecasts a slight slowdown in growth rates in the second half of the current fiscal year. The additional momentum given to the economy through GST rationalization and income tax reduction is gradually weakening. Furthermore, weather will play an important role; up to September 9, the total rainfall in the country was about 15% below normal, which could significantly affect agriculture and rural consumer demand.

S&P forecasts that average consumer inflation in India in the current fiscal year will be around 5.1%. Consequently, attention will be paid to inflation and food prices. The agency expects the Reserve Bank of India (RBI) may raise its policy rate by 25 basis points during the current fiscal year. Thus, despite strong growth, there is pressure from the need to tighten policy due to rising inflation.

The most serious external challenges for India are the cost of crude oil and the dynamics of the rupee. If oil prices remain high amid Middle East conflicts, this could affect import bills, inflation, and the Indian rupee exchange rate. India imports over 80% of its required fuel. According to S&P, by mid-September, the Indian rupee had weakened by more than 5% against the US dollar. Despite this external pressure, the resilience of domestic consumption and investment remains, making the domestic economy India's main strength.

The rating agency adjusted the forecast for India's real GDP for 2026 by 0.4 percentage points, while the forecast for 2027 remained unchanged. According to S&P estimates, the next three fiscal years may look like this: 2025 – 7.8%; 2026 – 7.0%; 2027 – 7.2%; 2028 – 7.0%; 2029 – 6.8%.

India surpasses China and Japan in GDP growth rates according to S&P forecasts. China is projected to grow at 5.0% in 2025, 4.3% in 2026, 4.3% in 2027, 4.4% in 2028, and 4.2% in 2029. Forecasts for Japan are 1.2% in 2025, 0.8% in 2026, 0.9% in 2027, 0.9% in 2028, and 0.7% in 2029. South Korea is projected to show figures of 1.1%, 3.5%, 2.7%, 2.4%, and 1.9%. Although Taiwan's forecast for 2026 is 10.9%, higher than India's, this is attributed to strong activity in technology and artificial intelligence.

S&P is not the only one positive about India's growth. On September 18, Moody's Ratings also raised India's GDP forecast for the fiscal year 2026-27 from 6% to 7%. The agency attributed this to strong private consumption, investment, public infrastructure spending, and the strengthening of the services sector. Thus, there has recently been an improvement in growth forecasts for India from global rating agencies.

India's strong growth means that the foundation of demand and investment in the domestic economy currently remains solid. However, another side of the coin is important for investors: the inflation forecast of 5.1%, a possible 25 basis point rate hike, expensive oil prices, pressure on the rupee, and the risk of growth slowdown in the second half of the year cannot be ignored. In the coming months, key indicators for India's growth rate will be agricultural production, food inflation, crude oil prices, and the next RBI decision.

Despite ongoing discussions regarding the pace of India's GDP growth and data calculation methodologies, the International Monetary Fund (IMF) issued positive comments concerning new economic indicators and their formation methods. According to IMF data, India continues to be a key driver of global economic growth.

The global institution noted that updated series of the Index of Industrial Production (IIP) and the Producer Price Index (PPI) may contribute to further improvement in forecasts for India's GDP growth.

The IMF also reported that real GDP growth in the first quarter of the 2026-27 fiscal year was 7.8%, exceeding expectations. During a press briefing held in Washington, Julie Kozak, IMF's Director of Communications, discussed the latest data on India's GDP. She emphasized that the new IIP indices and PPI series included in the latest GDP report will help refine forecasts for India. This means that in the future, a more current representation of data will be available for measuring economic activity and assessing GDP.

Julie Kozak also highly praised the efforts made by Indian authorities to modernize the macroeconomic data system. She recommended that Indian officials continue to strengthen the statistical base and data quality in the same spirit. These remarks from the IMF came amid questions raised by the Congress party and some of its leaders regarding the quality of India's economic indicators and GDP calculations. The government, for its part, asserts that the new datasets and modified data system are aimed at increasing the reliability of forecasts related to economic activity.

The IMF acknowledged that recent indicators of India's economic growth turned out to be better than expected. According to Kozak, India's real GDP increased by 7.8% in the first quarter, which was higher than the projections of IMF staff and estimates from other rating agencies. This growth was supported by the services and export sectors. This figure demonstrates the resilience of India's domestic economy despite fluctuations in global energy prices.

The Ministry of Statistics and Programme Implementation (MOSPI) published GDP data for the April-June 2026-27 fiscal quarter on August 31. According to this data, India's real GDP growth in the first quarter reached 7.8%, compared to 6.9% the previous year. Economic activity was supported by strong capital expenditure, the construction sector, and the services sector. At stable prices, using the 2022-23 base year, real GDP amounted to 81.36 lakh crore rupees. In the first quarter of the 2025-26 fiscal year, this figure was 75.46 lakh crore rupees. At current prices, nominal GDP grew by 10.3%, reaching 88.27 lakh crore rupees, compared to approximately 80 lakh crore rupees the previous year.

Gross Value Added (GVA) also showed confident growth. In the first quarter, real GVA increased by 8.2%, reaching 73.82 lakh crore rupees, while nominal GVA grew by 11.5%, amounting to 80.53 lakh crore rupees. This indicates the stability of economic activity in key sectors such as services, construction, and others.