Moody's Projects India's GDP to Grow 6.4% in FY27, Fastest Among G20 Economies
Moody's Ratings has projected that India's gross domestic product (GDP) will grow at a rate of 6.4% in the fiscal year 2026-27, positioning the country as the fastest-growing economy among the G20 nations. This optimistic forecast is underpinned by strong domestic consumption, effective policy measures, and a stable banking system, according to the agency's latest banking system outlook report released on Monday.
Drivers of Economic Growth
The report highlights that India's economic expansion will be primarily fueled by robust domestic consumption, which is expected to remain a key pillar of growth. Moody's pointed to specific policy initiatives that are set to enhance consumer affordability and support consumption-led growth. Notably, the rationalization of the goods and services tax (GST) in September 2025, coupled with an earlier increase in personal income tax thresholds, will play a crucial role in improving household spending power.
"We forecast India's real GDP will grow 6.4 per cent for fiscal 2026-27, the fastest pace among G-20 economies, driven by strong domestic consumption and policy measures," Moody's stated in its report. This growth projection, while impressive, is slightly lower than the 6.8-7.2% range estimated by the Finance Ministry's Economic Survey presented in Parliament last month.
Banking System Resilience and Support
Moody's emphasized that the operating environment for Indian banks will remain strong in 2026, supported by robust macroeconomic conditions and ongoing structural reforms. The agency noted that banks' asset quality is expected to stay resilient, although some stress may persist among micro, small, and medium enterprises (MSMEs). Despite this, banks are well-equipped with sufficient reserves to absorb potential loan losses, ensuring financial stability.
The report further anticipates that system-wide loan growth will accelerate slightly to 11–13% in fiscal 2026–27, up from 10.6% in the year-to-date period of fiscal 2025-26. Corporate loan quality is projected to remain healthy, bolstered by strong balance sheets and improved profitability among large companies. As banks have resolved stressed loans to major corporates, recoveries are expected to taper off.
Monetary Policy and Inflation Outlook
With inflation under control and growth momentum remaining strong, Moody's anticipates that the Reserve Bank of India (RBI) may further ease monetary policy in fiscal 2026-27, but only if signs of an economic slowdown emerge. The RBI has already lowered its policy rate by a total of 125 basis points to 5.25% in 2025, reflecting a proactive approach to sustaining economic vitality.
Moody's also expects banks to maintain strong capitalization, supported by internal capital generation that keeps pace with asset growth. Funding and liquidity are projected to remain stable, with loans growing in alignment with deposits. "We continue to expect the government to provide strong support for banks in times of need," Moody's added, underscoring the safety net for the financial sector.
Comparative Growth Context
According to official estimates, India is likely to grow at a faster pace of 7.4% in the current fiscal year (2025-26), which is higher than the 6.5% growth recorded in 2024-25. This sets a positive precedent for the projected 6.4% growth in FY27, reinforcing India's position as a global economic leader among the G20 economies.
In summary, Moody's forecast paints a promising picture for India's economic trajectory, with sustained growth driven by domestic factors and supportive policies, while the banking system remains a pillar of strength in the face of potential challenges.
