S&P Global Raises India FY27 Growth Forecast To 7% From 6.6%, Sees RBI Rate Hike Ahead

S&P Global Ratings has raised its forecast for India’s economic growth in FY27 to 7% from 6.6%, but the stronger growth outlook comes with a potential shift in the interest-rate cycle, with the ratings agency expecting the Reserve Bank of India (RBI) to raise its policy rate by 25 basis points during the financial year.

The revision follows stronger-than-expected economic activity in the June quarter, when India’s real GDP grew 7.8% year-on-year. S&P said industrial activity, domestic consumption, goods exports and government investment were stronger than it had earlier expected, prompting it to raise its FY27 forecast by 40 basis points.

The ratings agency, however, expects the pace of growth to slow in the second half of FY27. Some of the support to demand from GST rationalisation and income-tax cuts is expected to fade, which could take some momentum out of consumption later in the fiscal year.

S&P's latest forecast puts India’s growth outlook above the estimates of both the RBI and Fitch Ratings. The central bank has projected FY27 growth at 6.7%, while Fitch's latest estimate stands at 6.4%. S&P expects the economy to grow 7.2% in FY28 and 7% in FY29.

The stronger growth outlook is also changing S&P's assessment of monetary policy. The agency expects consumer inflation to average 5.1% in FY27 and sees the RBI raising its policy rate by 25 basis points during the year. It expects the policy rate to reach 5.5% by the end of FY27, compared with 5.25% in FY26.

S&P cited solid economic growth and persistent inflationary pressures among the reasons for its expectation of higher rates. It also flagged the unresolved conflict in West Asia and weather-related risks as factors that could put additional pressure on inflation.

Weather conditions remain an important part of the outlook. S&P noted that cumulative rainfall was 15% below normal as of September 9. A weaker monsoon could affect agricultural output and, in turn, food prices, making inflation a key variable for the RBI as it assesses the need for further policy action.

Higher energy prices are another risk. S&P has warned that elevated oil prices could add to inflationary pressures and weigh on the Indian rupee. The agency noted that the rupee had weakened by more than 5% against the US dollar through mid-September.

Despite these risks, domestic demand remains a key support for the Indian economy. S&P said consumption growth in India has remained particularly strong, while investment momentum has also been among the strongest across the Asia-Pacific region. Government investment and resilient exports have added to the support for economic activity.

S&P’s latest assessment also follows a similar upgrade from Moody’s, which last week raised its FY27 growth forecast for India to 7% from 6%. The successive revisions reflect the stronger-than-expected performance of the economy, although the agencies continue to flag inflation, weather and external risks.

For the RBI, the combination of firm economic activity and inflation risks could make the policy outlook more closely dependent on incoming data. While S&P has raised its growth forecast, it expects the economy to lose some momentum later in FY27 as temporary demand drivers weaken. That leaves inflation, food prices, energy costs and domestic demand as key factors to watch in determining the path of interest rates.

Also Read - Prime Focus-Backed Brahma AI Raises $150 Million In Funding Round Led By Multiples