Moody’s Ratings has sharply raised India’s economic growth forecast for the current financial year to 7%, up from just 6% earlier, saying the economy has proved considerably more resilient to the Middle East conflict and elevated energy prices than it had initially expected.

The one-percentage-point revision for FY2026-27 is unusually large for a major ratings agency and follows stronger-than-expected domestic activity in the first half of the year. Moody’s said India is still likely to grow faster than every other G20 economy as well as other emerging markets with similar sovereign credit ratings.

The upgrade comes after India’s economy expanded 7.8% year-on-year in the April-June quarter, comfortably beating earlier expectations. Investment and manufacturing were among the main drivers, offsetting weaker activity in mining and some consumer-facing services. India had already grown 7.7% in FY2025-26, up from 7.1% the year before, giving the economy considerable momentum entering the current financial year.

Moody’s previous 6% forecast had reflected fears that the war in the Middle East would hit India particularly hard because of its dependence on imported oil and gas. India imports close to 90% of its crude requirements, leaving the economy exposed when energy prices rise sharply. Those concerns have not disappeared, but Moody’s now believes domestic consumption, private investment and public infrastructure spending have provided a much stronger cushion than expected.

The new forecast is also notably more optimistic than several other major projections. The Reserve Bank of India raised its own FY27 forecast to 6.7% in August, while the IMF currently expects growth of 6.4%. The World Bank projected 6.6% in its April India Development Update. Moody’s 7% estimate therefore places it at the upper end of the current consensus, although several private economists raised their forecasts above 7% following the unexpectedly strong first-quarter GDP data. The upgrade, however, comes with important warnings.

Moody’s said high global energy prices remain one of the biggest risks to the outlook. India’s crude import bill has already risen sharply, with oil imports increasing 25.8% year-on-year in August as the Indian crude basket climbed above $90 a barrel. Wholesale inflation has also accelerated, with fuel and power prices rising 22.93% year-on-year in August.

Food inflation is another concern. Moody’s warned that El Niño-related weather disruptions could push food prices higher, reducing household purchasing power and weakening consumption. The 2026 monsoon has been uneven, with large rainfall deficits in several parts of the country.

Higher energy prices could also complicate government finances. Moody’s said the fiscal response to the Middle East shock has so far been relatively limited, but prolonged high oil and gas prices could force the government to increase subsidies or provide additional support to consumers and industry. At the same time, rising defence expenditure and continued infrastructure investment could slow the pace of fiscal consolidation.

For now, though, the direction of Moody’s revision is clear. Earlier in the year, the debate was about how badly India would be hit by a prolonged Middle East energy shock. The stronger-than-expected growth numbers have changed that conversation.

The question now is whether India can sustain growth close to 7% while simultaneously absorbing higher oil prices, rising inflation and a weaker global environment. Moody’s believes it can.