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Shocks keep coming, India keeps growing

By Sohail Khan 18 September 2026, 2:43 pm

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Business News›News›Economy›Indicators›The mood, as per Moody's: Shocks keep coming, India keeps growing

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The mood, as per Moody's: Shocks keep coming, India keeps growing
Synopsis

Moody’s has raised India’s FY27 real GDP growth forecast to 7% from 6%, citing the economy’s resilience amid the Middle East conflict and elevated energy prices. Strong domestic consumption, investment, manufacturing and services are supporting growth, though higher oil prices, inflation, US tariff risks and food-price pressures remain concerns.

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image (28) — India’s economy is showing resilience amid global shocks, with strong manufacturing, investment and domestic demand helping sustain growth despite high oil prices and geopolitical risks. (AI image)

India is not just growing faster than many others, but also growing despite the global turbulence. Credit ratings agency Moody's has raised India's real GDP ‌growth forecast to 7% from 6% for the current fiscal, citing its resilience amid the Middle East conflict.

Though the agency said elevated energy prices and El Nino-related food price pressures pose risks to inflation, consumption and growth, it expects India to grow faster ⁠than all other G-20 economies, as well as similarly rated emerging market economies.

Also read: Moody’s raises India FY27 growth forecast to 7% from 6% on resilient economy, stronger investment

Moody’s latest review has captured a mood in India's economy that is likely to become a feature. It is that an economy exposed to some of the world’s biggest external shocks has absorbed them better than the ratings agency had anticipated.

The timing of Moody’s upgrade of real GDP growth forecast to 7% from 6%, which explicitly cites India’s resilience to the Middle East conflict, comes amid big risks which have not disappeared. Brent crude remains above $100 a barrel, Houthi attacks threaten another choke point even as Hormuz remains far form normal, and the US has opened a new front over India’s purchases of Russian oil. But the economy has so far continued to expand at a pace that has surprised forecasters.

The evidence of resilience Moody's cites is already visible in the numbers. India’s GDP expanded 7.8% in the April-June quarter of FY27, comfortably above the RBI's 7% forecast and the 7.1% median estimate in a Reuters poll. Investment, manufacturing, services and domestic consumption all remained strong.

The shock that was supposed to slow India down

The conflict in the Middle East has created a difficult environment for an oil-importing economy. Brent crude crossed $100 a barrel this month and shot up towards $110 before falling to around $102. Earlier in the month, attacks on energy infrastructure and disruption around important shipping routes pushed crude sharply higher.

For India, expensive oil creates a familiar chain of problems. It raises the import bill, puts pressure on the rupee and increases transportation and production costs. If the shock persists, higher fuel costs can feed into inflation and eventually squeeze household spending.

Moody’s itself has warned that a prolonged Middle East conflict could push inflation above its 4.8% forecast for FY27. It also points to the possibility of higher subsidy spending, weaker remittances from the Middle East and softer external demand.

And now there is another complication. The US House has passed legislation that would give President Donald Trump the power to impose tariffs of up to 100% on countries that continue buying Russian energy.

India has said it will protect its economic interests and energy security, and it appears it will not simply abandon Russian crude because of the 100% tariff threat. The issue is particularly difficult because replacing those barrels at short notice is complicated by disrupted Gulf supplies, depleted inventories and high tanker costs. This is precisely where the idea of resilience becomes important.

The 7.8% number changed the argument

The April-June GDP data provided the strongest evidence yet that external shocks are not translating into an economy-wide slowdown. Growth of 7.8% was not driven by one isolated sector. Private consumption grew 7.1%, gross fixed capital formation increased 11.9% and manufacturing expanded 9.2%. Financial, real estate and professional services grew about 12%. Exports also held up better than expected.

The investment number was particularly important. Gross fixed capital formation rose to 34.3% of GDP from 31.4% a year earlier. Private-sector capital investment increased by more than Rs 5 trillion from a year earlier, while corporate capital expenditure had risen 11%. Higher factory utilisation, stronger bank credit and healthier corporate balance sheets are helping turn investment into a broader source of growth rather than leaving infrastructure spending almost entirely dependent on the government. An economy becomes harder to derail when several engines are operating at the same time.

Also read: IMF sees India among fastest-growing major economies despite trimming FY27 GDP growth projection to 6.4%

Domestic demand is acting as a shock absorber

India's large domestic market has become one of its most important buffers. When global trade weakens, an economy heavily dependent on exports can suffer quickly. India is certainly exposed to global demand, particularly through merchandise exports, IT services and other business services. But domestic consumption accounts for a much larger part of economic activity.

That was evident in the first quarter. Consumption continued to grow even as oil prices rose and geopolitical uncertainty increased. The result was that weaker external conditions did not translate into an immediate collapse in household demand.

The investment cycle is adding another form of support. Public infrastructure expenditure has remained strong while private companies are increasingly committing money to data centres, manufacturing, power and other capacity. Private investment is broadening after years in which public capital expenditure did much of the work.

This makes the current growth composition different from a recovery dependent on a single stimulus measure.

Infra has changed the economy’s ability to absorb shocks

Roads, railways, ports, power networks and digital infrastructure do not simply add to GDP when they are built. Over time, they can reduce logistics costs and improve the ability of companies to move goods and expand capacity. This can help explain why the investment response has remained relatively strong despite an uncertain global environment.

The fiscal numbers show that the government has continued to prioritise capital spending. India's April-July fiscal deficit was Rs 4.55 lakh crore, or 26.8% of the FY27 target, while capital expenditure during the period rose to Rs 4.5 lakh crore from Rs 3.5 lakh crore a year earlier. There is a cost to maintaining that pace. Moody’s has cautioned that infrastructure and defence spending, combined with possible energy subsidies, could slow fiscal consolidation. But from a growth perspective, infrastructure spending has provided a cushion at a time when external conditions have become less predictable.

The Russia oil episode is another test of adaptability

India's response to the oil shock also shows how the economy has adapted. Russian crude became an increasingly important source of supply after 2022, giving Indian refiners access to discounted barrels while reducing dependence on any single supplier. That flexibility has now become a source of geopolitical friction with the US.

India faced a similar problem after the US imposed a 25% tariff related to Russian oil purchases in 2025. India initially absorbed the tariff rather than immediately abandoning Russian crude. Imports actually rose for several months, reaching about 1.8 million barrels per day in November 2025 before subsequently declining.

The current situation is harder because Gulf supplies themselves have been disrupted. Replacing Russian barrels is therefore not simply a matter of switching suppliers. Indian refiners would be competing for alternative crude at a time when Brent is already around $100-$105 a barrel and tanker freight costs are elevated. That leaves India with an uncomfortable trade-off between energy costs and trade access. So far, however, the response has been to preserve flexibility rather than allow one external pressure to dictate the entire economic strategy.

Resilience does not mean immunity

Moody’s 7% GDP growth forecast must be read carefully. The agency is not saying that India has become immune to global shocks. In fact, its review highlights several vulnerabilities such as prolonged high oil prices could lift inflation and weaken consumption while El Niño could increase food-price pressures. A wider current account deficit could emerge if energy imports become more expensive. Higher global interest rates could also raise India's financing costs.

In addition to these vulnerabilities cited by Moody's, the US tariff threat is another genuine risk. A 100% tariff would have very different consequences across sectors depending on their exposure to the American market. It could hurt exporters even if domestic demand remained strong.

The rupee is also a pressure point. It is hovering near 96 to the dollar, while oil prices remain above $100. The RBI has been intervening in the foreign-exchange market and traders have increased expectations of future rate hikes as inflation risks rise.

All these factors can weigh on economic growth, so resilience should not be confused with insulation.

While shocks will keep jolting India, what really matters is how much of the external shock will actually reach the broader economy. Before the first-quarter GDP data, it was reasonable to expect expensive oil, disrupted trade and geopolitical uncertainty to weaken consumption and investment. Instead, investment accelerated, manufacturing remained strong and services continued to expand. The economy grew 7.8% when expectations were clustered around the low-7% range.

All this means that India is not insulated to external shocks but the Indian economy might have come to develop capacity to absorbs shocks better than before.

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India GDP growth forecastIndian economy performance 2023Moody's India reportglobal economic resilienceIndia's economic stabilityMiddle East conflict impact on Indiainvestments in Indiaoil prices India economyinternational trade and Indian rupeeEl Niño food price inflation

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