S&P Raises India FY27 GDP Growth Forecast to 7%

S&P Global Ratings has increased its India FY27 GDP growth forecast to 7% from 6.6% due to better-than-anticipated economic performance in the June quarter. Strong industrial production, favorable consumer spending, goods export, and enhanced public investments have resulted in an increase. However, S&P believes that economic growth is likely to slow down in the second half of the fiscal year as the effects of GST reform and income tax cuts dissipate. Moreover, S&P anticipates an interest rate hike of 25 basis points by the Reserve Bank of India (RBI) amid rising inflation and rising crude oil prices and weather uncertainties.

Reasons for S&P Upgrading India’s Growth Forecast

According to S&P, India’s economy outperformed expectations during the June quarter due to the following reasons:

India’s industrial activity remains robust, and consumer spending growth was healthy. Besides, exports of goods and increasing government investments also aided India’s economic performance.

Based on the current momentum, S&P has revised its FY27 real GDP growth estimate from 6.6% to 7%.

Moreover, according to S&P, investment momentum in India is among the strongest within Asia-Pacific economies.

Growth Could Slow in Second Half

While the forecast has been revised upwards, according to S&P, economic growth is expected to face some headwinds in the second half of FY27.

Some of the effect of GST rationalization and tax reduction measures may taper off, reducing the effect on consumption and the economy.

Weather patterns also pose a problem, with S&P pointing out that there had been a shortfall in cumulative rain by 15% up to September 9.

Thus, agriculture and food prices are going to be critical determinants of India’s growth trajectory.

Rate Hike Expected from RBI

S&P projects a hike in the policy rate of the RBI by 25 basis points during FY27.

According to the company, there is a risk tilt towards an increase in interest rates due to economic growth, inflation pressures, and weather risks, including the ongoing conflict in West Asia.

Consumer inflation for FY27 is expected to be 5.1%, according to S&P.

An increase in oil prices can also put additional pressure on both inflation and the Indian currency. S&P highlighted that the Indian currency has depreciated by over 5% against the US dollar till mid-September.

India Is Still One of the Strongest Growth Engines

In spite of the mentioned challenges, S&P still considers India one of the strongest growth engines in Asia-Pacific.

The agency stressed especially high consumption growth and healthy investment momentum. The government spending on infrastructure has also helped economic performance.

The most recent forecast by S&P is in line with recent upgrades by other organizations. On September 18, Moody’s Ratings upgraded FY27 India growth forecast from 6% to 7%, pointing at the consumption, investment, and service activity growth.

Earlier, the World Economic Forum forecasted 6.7% growth for India in FY27.