Industry Odisha Bureau, Sep 24: Four global agencies have raised India’s FY27 GDP forecast on investment and upbeat demand. Rising inflation, however, has put a possible RBI rate hike on the table.
The case for faster India GDP growth is getting louder. Four global institutions now project FY27 growth between 6.9% and 7.1%. Investment and upbeat demand sit at the centre of those upgrades. Yet the same forecasters see inflation rising, and possibly higher interest rates.
Investment Lifts the FY27 Growth Forecast
The trigger was a stronger-than-expected June quarter, when GDP expanded 7.8%. Investment, resilient consumption, manufacturing and services all contributed.
The OECD now sees FY27 growth at 7.1%, up from 6.3% in June. The Asian Development Bank lifted its estimate to 7%, from 6.6% in July. S&P Global Ratings also moved to 7%, from 6.6%. Fitch Ratings raised its India growth forecast to 6.9%, from 6.4%.
These remain projections, and one strong quarter does not settle the full year.
Capital Formation Drives Momentum
Investment data explain much of the optimism. Gross fixed capital formation rose 11.9% in Q1FY27. Corporate sales climbed 21.3%, while exports grew 15.9%. Neither figure measures GDP directly, but both point to firmer activity.
The ADB credited strong public investment and infrastructure spending for its upgrade. It also noted resilient services and electronics exports.
Services and Manufacturing PMI Hold Firm
Business surveys point the same way. Manufacturing PMI rose to a seven-month high of 55.7 in September. It had stood at 52.8 in August. Services activity improved to 55.8, from 54.1.
Mio Oka, ADB country director for India, highlighted services strength and AI-related investment. Better agricultural productivity and steady manufacturing could also help, the ADB said.
Domestic Demand Expected to Lead
The ADB expects domestic demand to remain the main growth engine through FY28. Robust tax collections, low interest rates and rising household incomes provide support. Government salary and pension revisions, anticipated in FY28, could add further lift.
India Inflation Complicates the Picture
Price pressures are the main counterweight. Retail inflation rose to 4.8% in August, from 4.5% in July. That is above the RBI’s 4% target but inside its two-point tolerance band. Energy and food prices are adding pressure.
The ADB expects FY27 inflation to average 5%. The OECD projects 4.7%, and S&P Global Ratings 5.1%. Fitch sees inflation reaching 5.5% by December 2026.
RBI Rate Hike Enters the Debate
S&P expects the RBI to raise its policy rate by 25 basis points this fiscal. The ADB and OECD also anticipate tightening to contain price pressures. These are institutional expectations, not RBI decisions.
Monsoon, El Niño and West Asia Risks
External and weather risks remain. The ADB flagged prolonged geopolitical uncertainty and El Niño-related disruptions. The OECD warned a weaker monsoon could hurt agricultural production. The West Asia conflict has already brought supply disruptions and high commodity prices.
The OECD also expects weaker purchasing power to weigh on growth through the second half. It sees a gradual recovery in 2027.
India enters the rest of FY27 with stronger momentum than forecasters expected. Inflation, rates and weather will decide how much of it lasts.
