Global rating agency Moody’s has released an encouraging report on the Indian economy on Monday. The agency has estimated that India’s GDP will grow at 6.4% in the next financial year (FY27). According to Moody’s, with this pace, India will remain the fastest growing economy in the group of G-20 countries.
Domestic consumption and policy reforms
The main reason Moody’s has clarified in its report that the main reasons behind India’s strong economic growth are domestic consumption and policy steps taken by the government. The agency specifically mentioned the rationalization of the Goods and Services Tax in September 2025 and the increase in the personal income tax limit. Moody’s believes that these reforms have increased the purchasing power of consumers, which will support consumption-led growth.
comparison with government estimates
However, Moody’s estimate of 6.4% is slightly conservative compared to the Indian government’s own estimates. In the Economic Survey tabled in Parliament last month, the Finance Ministry had projected a growth rate of 6.8% to 7.2% for FY27. According to official data, India’s growth rate in the current financial year (2025-26) is expected to be 7.4%, which is much better than the 6.5% growth recorded in 2024-25.
Banking Sector: Amidst strong concerns over MSME, Moody’s has also given its opinion on the Indian banking system. The main points of the report are as follows:
- Acceleration in loan growth: System-wide loan growth is expected to increase to 11-13% in FY 2026-27, from 10.6% in the current fiscal.
- Strong Balance Sheet: Large corporates have strong balance sheets and improved profitability, which will keep corporate loan quality healthy.
- Pressure on MSME: Although asset quality will remain resilient, Moody’s expects some stress among micro, small and medium enterprises (MSMEs). The matter of relief is that banks have enough reserves to absorb loan losses.
RBI and interest rates outlook
Commenting on the monetary policy of the Reserve Bank of India (RBI), Moody’s said that the central bank has cut the policy rate by a total of 125 basis points so far in 2025, bringing the rates to 5.25%. With inflation under control and growth momentum remaining strong, Moody’s believes that the RBI will ease monetary policy further in FY 2026-27 only if there are signs of slowdown in economic activity. This report of Moody’s shows that despite global challenges, the foundation of the Indian economy is strong. The operating environment of banks is expected to remain strong in 2026, supported by macroeconomic conditions and structural reforms. The agency also said the government will continue to provide strong support to banks when needed.
