Moody's Ratings has raised its forecast for India's economic growth to 7 per cent for the financial year 2026-27, up from 6.5 per cent, saying the country's broad-based momentum and its resilience to the global energy supply shock justify the upgrade.

The revision was published on Wednesday in the agency's Global Macro Outlook 2027-28. It comes after India's economy expanded by 7.8 per cent year on year in the April to June quarter, a pace that exceeded market expectations and was driven by manufacturing, investment and consumer demand.

Why Moody's raised the forecast

Moody's said India had adjusted to higher energy prices better than it had previously anticipated. The country has been able to diversify its crude oil and natural gas supplies, and state-backed oil marketing companies, together with tax cuts, have helped shield households and businesses from the immediate impact of higher prices.

The agency also pointed to India's refining strength. India is home to the world's largest single-site refining complex, and its large and sophisticated refining capacity has helped limit fuel supply disruptions while supporting its position as a major exporter of refined petroleum products.

Strong consumption, improving investment and sound macroeconomic fundamentals should help India sustain growth close to 7 per cent over the medium term, according to the outlook. A sustained private investment boom that materially boosts manufacturing, employment and productivity could lift growth above the agency's baseline projections.

Signs of a new investment cycle

Moody's said high-frequency indicators suggested India may be at the start of a new private capital expenditure cycle after several years of repair to corporate and banking sector balance sheets. Robust capital goods production and imports, accelerating industrial credit growth and rising capacity utilisation all point in that direction, the agency said.

Broader economic activity also remains solid. Manufacturing and services purchasing managers' indexes are expanding, while goods and services tax revenue, vehicle sales and merchandise exports have all grown at double-digit rates year on year.

Risks that remain

The upgrade comes with clear warnings. Moody's said near-term risks to growth persist because household consumption remains vulnerable to intensifying and broadening price pressures, with headline inflation close to the upper end of the Reserve Bank of India's 2 to 6 per cent target range.

A deficient South-West monsoon and strengthening El Nino conditions will weigh on agricultural output and rural demand, the agency added. With the Reserve Bank of India on track to raise interest rates further, tighter monetary policy could delay the recovery in private investment.

For now, though, the message from the ratings agency is one of guarded confidence: India's economy has absorbed the energy shock better than expected, its investment pipeline is strengthening, and growth of around 7 per cent looks sustainable provided inflation and the monsoon do not deteriorate further.