Moody's Raises India's GDP Growth Forecast to Over 6.5% for FY26.
Economy Business
On March 12, 2025, New York-based Moody’s Ratings released its report titled 'Banking System Outlook India,' revising India’s Gross Domestic Product (GDP) forecast for FY26, projecting it to exceed 6.5%, up from 6.3% in FY25.
- The revision is driven by higher government capital expenditure (CapEx), tax cuts for middle-class income groups to boost consumption, and monetary easing through interest rate reductions.
- India’s real GDP growth had slowed to 5.6% in Q2 FY25 (July-September 2024) before rebounding to 6.2% in the following quarter.
- Moody’s projects India's GDP growth to exceed 6.5% in FY26, driven by higher government CapEx, tax reductions, and interest rate cuts, which will boost consumption. Additionally, India's average inflation rate is expected to decline to 4.5% in FY26 from 4.8% in FY25, reflecting the positive impact of monetary easing.
Main Point :- (i) Moody’s maintains a stable outlook for India’s banking sector in FY26, though a moderate deterioration in asset quality is expected in unsecured retail loans, Micro Finance Loans (MFLs), and Small Business Loans (SBLs). Despite this, banks' profitability will remain adequate, with only marginal declines in net interest margins due to modest rate cuts.
(ii) System-wide loan growth is anticipated to slow to 11-13% in FY26, compared to the average of 17% (March 2022 - March 2024), as banks focus on aligning loan expansion with deposit growth.
(iii) Moody’s also indicated that after a temporary slowdown in mid-2024, India's economy will reaccelerate, maintaining a strong growth trajectory into FY26.
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