After Moody's, now S&P and Fitch raise their India growth forecasts

India’s economy expanded 7.8% in the June quarter, prompting the rating agencies to revise their full-year projections higher.(Pexels)AI Quick ReadA number of global agencies raised their growth forecasts for India in the range of 40 to 80 basis points (bps) for the fiscal year through March 2027, citing the country’s resilience amid the West Asia war and higher-than-expected 7.8% expansion in the June quarter.

They, however, projected growth to moderate in the second half of the fiscal year from the June quarter level, with at least two of them—global rating agencies S&P and Fitch—expecting inflationary pressure to mount in the wake of the conflict and below-par monsoon rains.

This could lead the Reserve Bank of India (RBI) to raise the interest rates, they said in separate statements. Still, the projected growth rates keep India as the fastest-growing major economy amid the global turmoil. While S&P has revised up its FY27 India growth forecast to 7% from the previously-reported 6.6%, Fitch has raised it to 6.9% from 6.4%, both joining their peer Moody's, which raised its projection last week to 7% from 6%.

The Organisation for Economic Co-operation and Development (OECD) on Wednesday raised its FY27 India growth forecast to 7.1% from 6.3%. It said growth was underpinned by resilient domestic demand and government policies that cushioned households and companies from the impact of higher energy prices.

The Asian Development Bank (ADB), too, raised its forecast for the country to 7% from 6.6%. “Despite supply disruptions and high commodity prices, India’s economy continues to demonstrate resilience, supported by strong infrastructure spending and growth-supporting fiscal and monetary policies,” ADB country director for India Mio Oka said in a statement.

Continued strength in services, including AI-related investments, alongside improvements in farm productivity and steady manufacturing growth, will help sustain the growth momentum, Oka added. The multilateral lender, however, cut its growth forecast for the next fiscal year marginally to 7.1% from 7.3%.

OECD said, “Despite recent strong momentum, reduced purchasing power is also expected to weaken growth in India through the second half of this year, before a gradual recovery takes place in 2027.” It predicted growth to slow down to 6.5% in FY28.

S&P, too, expected a moderation in growth momentum, going forward. "(We) expect growth to ease in the second half of the fiscal year as the tailwinds from general sales tax (goods and services tax) rationalization and income tax cuts diminish.

Weather-related risks warrant close monitoring," S&P said. Cumulative rains were 15% below normal until 9 September in the current monsoon season, S&P said, adding farm output and food inflation remain key variables to watch.

Fitch expects growth to moderate over the rest of the financial year. It cited a slower pace of expansion in both manufacturing and services in the purchasing managers' index, impact of below-normal monsoon rains on growth in farm and rural demand and rising inflation that, it said, will constrain real incomes and consumer dynamics.

However, it expected private investment prospects to look more buoyant, projecting a more than 10% rise this fiscal year. As for FY28, Fitch projected growth to settle at 6.5%, as the energy price shock unwinds, with consumer spending and investment driving growth.

It expects growth to touch 6.5% in FY29 as well. S&P expects the Reserve Bank of India (RBI) to raise the interest rate by 25 basis points this fiscal to 5.5%, flagging persistent inflationary pressures in times of high growth, an unresolved conflict in West Asia, and weather-related risks.

Fitch reckons the RBI could raise the interest rate by 25 basis points in the next monetary policy committee meeting in October and by another 25 basis points in early 2027, "given the combination of strong demand, price rises, and adverse supply developments".

Fitch said the interest rates could then ease back to 5.5% in 2028. "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, forecasting a 25 bps hike in the interest rate in FY27.

The biggest rating agency expected consumer price inflation to average 5.1% in FY27, a tad higher than RBI's 5% forecast. Fitch expected retail inflation to increase in the short term, touching 5.5% in December this year from 4.82% in August, before easing.

It also expected the rupee to remain close to current levels against the dollar for the rest of the year, and to depreciate slightly next year.