S&P Global Ratings raises India’s GDP growth forecast to 7.1% for FY27

S&P Global Ratings, in its latest quarterly Asia-Pacific economic commentary, has raised India’s gross domestic product (GDP) growth forecast to 7.1% for fiscal year 2026-27 (FY27), citing strong domestic demand drivers such as private consumption, investment and steady exports. It also revised its FY26 growth estimate upward by 0.4 percentage points to 7.6%.

However, it cautioned that ongoing tensions in the Middle East could strain the fiscal position due to higher energy prices arising from the conflict. It said risks from renewed geopolitical tensions and persistent trade-related uncertainties could affect India through fluctuations in commodity prices, trade volumes, and capital flows. It expects fuel prices in India to rise if oil prices remain elevated, to contain subsidy costs, but does not foresee a full pass-through.

The agency said inflation is likely to rise to 4.3% in FY27 as it normalises from low levels. Elevated crude prices could widen India’s trade deficit, though a healthy surplus in services trade is expected to help contain the current account deficit. Overall, it expects the Reserve Bank of India (RBI) to maintain a neutral stance and keep interest rates unchanged under its baseline scenario.

It said the Middle East conflict will weigh on the Asia Pacific region's economies with many of the nations being major net energy importers relying heavily on Middle East supply. It added that higher energy prices erode purchasing power and depress domestic demand. In countries such as India, Indonesia, Japan, Malaysia, and Thailand, higher prices will force greater spending on subsidies and thereby strain fiscal positions.