Fitch Ratings and S&P Global Ratings have revised their economic growth forecasts for India for financial year 2026-27, reflecting stronger than expected economic activity during the first quarter of the financial year. Fitch has raised its forecast to 6.9%, while S&P Global Ratings has increased its projection to 7%.
The revisions come after India recorded stronger than expected economic growth during the April to June quarter. The Indian economy expanded 7.8% year on year during the June quarter, according to the latest data cited by the rating agencies. The performance was stronger than earlier expectations and has influenced the updated growth outlook for the current financial year.
Fitch Ratings has raised its FY27 growth forecast from 6.4% to 6.9%. The agency said the Indian economy had shown resilience despite external economic pressures. Fitch also noted that growth during the June quarter was stronger than it had expected earlier.
According to Fitch, the Indian economy could experience some moderation during the remaining part of FY27. The ratings agency pointed to below normal monsoon rainfall, higher inflation and indications of slower growth in manufacturing and services as factors that could affect economic activity.
Fitch also expects private investment to remain relatively strong. The agency has projected private investment growth of more than 10%, while non food credit growth had reached 19% year on year in July, according to its latest assessment.
S&P Global Ratings has taken a slightly higher view of India's growth prospects. It has increased its FY27 growth forecast to 7% from its earlier estimate of 6.6%. The agency attributed the revision to robust industrial activity, healthy domestic consumption, strong goods exports and accelerating government investment.
S&P said the stronger than expected performance in the June quarter was one of the main reasons for the revision. However, it expects the pace of economic expansion to moderate during the second half of FY27.
One reason for the expected moderation is that some of the temporary factors supporting demand could lose strength. S&P specifically referred to the impact of Goods and Services Tax rationalisation and income tax cuts, which it expects to provide less of a boost to growth later in the financial year.
The two rating agencies have also highlighted inflation as an important factor for India's economic outlook. S&P expects consumer inflation to average 5.1% during FY27. It said persistent inflationary pressures, strong economic activity and developments in global markets could influence the Reserve Bank of India's monetary policy decisions.
S&P expects the RBI to increase its policy rate by 25 basis points during FY27. The agency said the balance of economic considerations could shift towards higher interest rates because of solid growth, inflationary pressures, geopolitical developments and weather related risks.
Fitch has also projected a 25 basis point increase in the RBI policy rate. According to Fitch, the rate hike could take place in October, taking the policy rate to 5.5%. The agency has cited rising inflation and other economic conditions behind its expectation.
Weather conditions remain another area of concern for the economic outlook. S&P said cumulative rainfall was 15% below normal through September 9. The agency noted that agricultural output and food inflation would therefore remain important variables for the Indian economy.
A weaker monsoon can affect agricultural production and rural demand, while lower farm output can put pressure on food prices. These developments can influence both economic growth and monetary policy decisions.
Fitch has similarly pointed to below normal monsoon conditions as a factor that could weigh on agricultural growth and rural demand. The agency also expects rising inflation to put some pressure on household purchasing power and consumer activity.
External developments are another factor being monitored by the rating agencies. Higher energy prices, geopolitical tensions and developments in West Asia could affect India's inflation outlook and external balances.
S&P has also pointed to the impact of higher oil prices on inflation and the Indian rupee. The agency noted that the Indian currency had weakened against the US dollar during the year and that higher energy prices could create additional pressure.
Despite these risks, the latest forecasts indicate that both rating agencies expect India to maintain relatively strong economic growth during FY27. S&P's 7% projection is above the Reserve Bank of India's current 6.7% growth forecast cited in the report. Fitch's revised 6.9% estimate is also higher than its previous 6.4% projection.
The revised forecasts follow a strong performance in the previous financial year. India's economy grew 7.8% during FY26, according to the latest figures cited by the agencies. The stronger growth momentum has contributed to the upward revisions for FY27.
The expected RBI rate increase would represent a change in the monetary policy environment if implemented. Higher policy rates can influence borrowing costs for households and businesses, while also affecting demand, investment and inflation conditions. The actual timing and size of any rate decision, however, will depend on the RBI's assessment of economic and inflation data.
S&P's projection is specifically for a 25 basis point increase during the current financial year. Fitch has given a more specific expectation, forecasting a 25 basis point increase in October. These are forecasts from the rating agencies and are not announcements of an RBI decision.
For India's economy, the coming months will therefore be closely watched for developments in consumption, investment, industrial production, agricultural output and inflation. Global energy prices and geopolitical developments will also remain important external factors.
The latest assessments from Fitch and S&P present a stronger FY27 growth outlook compared with their earlier forecasts, while also highlighting several risks that could affect economic activity. At the same time, both agencies expect monetary policy to potentially move towards a higher policy rate during the financial year.
The revised projections provide an updated view of India's economic outlook for FY27, but actual growth and monetary policy outcomes will depend on economic data and developments throughout the year.