Moody's raises India's GDP growth forecast to 7 percent from 6.5 percent

International ratings agency Moody's is viewing India's strong domestic demand positively, even as the Iran war has created uncertainty in global energy supplies. On those considerations, the agency has raised its forecast for India's GDP growth in the fiscal year ending in March 2027.

Under the new Moody's forecast, India's growth in that fiscal year will be 7 percent, up from the previous forecast of 6.5 percent.

In a report published from Mumbai on November 11, Moody's said strong domestic consumption, an improving investment climate and firm macroeconomic foundations could allow India to sustain growth of around 7 percent over the medium term.

The agency's assessment said India has handled the pressure of higher energy prices better than previously expected, helped by diversifying its sources of crude oil and gas imports.

Moody's also cited the role of state-owned oil marketing companies and a strategy of tax relief that kept the immediate burden of price rises from falling on ordinary consumers.

Rising production and imports of capital goods, faster credit growth in industry and increasing use of production capacity point to renewed momentum in India's private investment, the agency said, adding that these indicators raise the possibility of a new private capital expenditure cycle.

Earlier, in the April-June quarter of this year, India's GDP grew 7.8 percent compared with the same period a year earlier, beating economists' forecasts on strong consumer demand, rising investment and a firm manufacturing sector.

Alongside the positive trend, Moody's also flagged several risks: continued rises in essential prices could pressure household consumption, a shortfall in the southwest monsoon could hurt farm output and rural demand, and tight monetary policy could slow the recovery in private investment.

India's October inflation data is due on Thursday. Economists surveyed by Reuters forecast that overall consumer inflation that month could rise to 5.93 percent, close to the tolerance limit set by India's central bank.

In October, the Reserve Bank of India raised its policy rate for the first time in almost four years. Market analysts believe rates could be raised by a further 90 basis points over the next 12 months.