MUMBAI: International rating agency Moody’s has projected that the country’s economy will expand by 6.4% on-year in FY27 and will remain the fastest among the G20-groupings, driven primarily by domestic consumption, which though is marginally lower than some domestic forecasts, highlighting the economy’s capacity to maintain strong performance amid lingering global uncertainties.
“We forecast India’s real GDP will grow 6.4% for fiscal 2027, the fastest pace among G-20 economies, driven by strong domestic consumption and policy measures. The GST rate cuts in September 2025 and an earlier increase in personal income tax thresholds will support consumption-led growth,” Moody’s said Monday in its banking system outlook report.
This forecast, however, is below the 6.8%–7.2% growth projected in the economic survey and many other forecasters.
The economy has remained buoyant since the last quarter of the FY25 and recently consumption led growth has been witnessed on account of income tax and GST cuts and the economy is slated to close the current fiscal at a healthy 7.4%.
The agency sees household spending to remain the key driver of growth, fuelled by rising incomes, rapid urbanisation, and a young, dynamic workforce. At the same time, investment is also expected to gain momentum, supported by government-led initiatives in infrastructure, industrial capacity expansion, and affordable housing.
Coupled with an evolving regulatory and policy framework designed to enhance the ease of doing business, these factors are likely to sustain growth across key sectors of the economy, it said.
On the banking side, the report said the asset quality will remain strong, although some stress could be seen among micro, small, and medium enterprises but banks have enough reserves to absorb any loan losses.
The report said the operating environment for banks will stay favourable in 2026, backed by healthy macroeconomic conditions and ongoing structural reforms.
Moody’s expects overall loan growth across the banking system to rise slightly to 11–13% in FY27, compared to 10.6% recorded so far in FY26.
The agency said with inflation under control and growth remaining strong, it expects the Reserve Bank to ease monetary policy in FY27 only if there are clear signs of a slowdown in economic activity. In 2025, the RBI had cut the repo rate by 125 bps to 5.25%.
“Corporate loan quality will remain healthy, supported by strong balance sheets and improved profitability among large companies. Recoveries will taper as banks have resolved stressed loans to large corporates,” Moody’s said.
Banks will continue to maintain strong capital levels, supported by internal capital generation that matches asset growth. Funding and liquidity conditions are expected to remain stable, with loan growth broadly in line with deposit growth.
“We continue to expect the government to provide strong support for banks in times of need,” Moody’s added.
Among the downside risks to its forecast, the agency listed external risks, including fluctuations in commodity prices, geopolitical tensions, and slower growth in trading partners. However, the combination of domestic consumption, strategic investments, and targeted policy support is expected to counterbalance these headwinds.