Moody's Lifts India's Current-Year GDP Forecast to 7% on Economic Resilience

Moody's has revised its real GDP growth forecast for India to 7% for the current fiscal year, a full percentage point increase from its previous estimate of 6%. The credit ratings agency attributed the upgrade to the Indian economy's demonstrated resilience in the face of the ongoing conflict in the Middle East.

Upgraded Outlook

In a statement released Friday, Moody's said it expects India to continue growing faster than all other G-20 economies and its similarly rated emerging market peers. The revision reflects a more optimistic outlook on the country's ability to navigate external economic shocks.

The forecast upgrade comes after India's economy posted strong performance in the first quarter of the fiscal year. Government data showed the economy expanded by 7.8% in the April-June period, comfortably beating expectations on the back of a surge in investment and manufacturing activity.

Potential Headwinds Remain

Despite the improved forecast, the agency highlighted several persistent risks that could impact the growth trajectory. Moody's warned that inflation, consumption, and overall growth face potential headwinds from:

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• Elevated energy prices stemming from global geopolitical instability.
• Food price pressures linked to potential El Niño weather patterns.

Fiscal Pressures a Concern

The ratings agency noted that India’s fiscal policy response to the Middle East shock had been muted so far. However, it cautioned that sustained high global energy prices could force an increase in government subsidy spending.

Moody's warned that this, combined with rising expenditures on defense and infrastructure, could constrain the government's path toward fiscal consolidation.