Moody's raises India's GDP growth forecast for FY2027 to 7% due to resilience in West Asia region

Despite ongoing discussions regarding the pace of India's GDP growth and data calculation methodologies, the International Monetary Fund (IMF) issued positive comments concerning new economic indicators and their formation methods. According to IMF data, India continues to be a key driver of global economic growth.

The global institution noted that updated series of the Index of Industrial Production (IIP) and the Producer Price Index (PPI) may contribute to further improvement in forecasts for India's GDP growth.

The IMF also reported that real GDP growth in the first quarter of the 2026-27 fiscal year was 7.8%, exceeding expectations. During a press briefing held in Washington, Julie Kozak, IMF's Director of Communications, discussed the latest data on India's GDP. She emphasized that the new IIP indices and PPI series included in the latest GDP report will help refine forecasts for India. This means that in the future, a more current representation of data will be available for measuring economic activity and assessing GDP.

Julie Kozak also highly praised the efforts made by Indian authorities to modernize the macroeconomic data system. She recommended that Indian officials continue to strengthen the statistical base and data quality in the same spirit. These remarks from the IMF came amid questions raised by the Congress party and some of its leaders regarding the quality of India's economic indicators and GDP calculations. The government, for its part, asserts that the new datasets and modified data system are aimed at increasing the reliability of forecasts related to economic activity.

The IMF acknowledged that recent indicators of India's economic growth turned out to be better than expected. According to Kozak, India's real GDP increased by 7.8% in the first quarter, which was higher than the projections of IMF staff and estimates from other rating agencies. This growth was supported by the services and export sectors. This figure demonstrates the resilience of India's domestic economy despite fluctuations in global energy prices.

The Ministry of Statistics and Programme Implementation (MOSPI) published GDP data for the April-June 2026-27 fiscal quarter on August 31. According to this data, India's real GDP growth in the first quarter reached 7.8%, compared to 6.9% the previous year. Economic activity was supported by strong capital expenditure, the construction sector, and the services sector. At stable prices, using the 2022-23 base year, real GDP amounted to 81.36 lakh crore rupees. In the first quarter of the 2025-26 fiscal year, this figure was 75.46 lakh crore rupees. At current prices, nominal GDP grew by 10.3%, reaching 88.27 lakh crore rupees, compared to approximately 80 lakh crore rupees the previous year.

Gross Value Added (GVA) also showed confident growth. In the first quarter, real GVA increased by 8.2%, reaching 73.82 lakh crore rupees, while nominal GVA grew by 11.5%, amounting to 80.53 lakh crore rupees. This indicates the stability of economic activity in key sectors such as services, construction, and others.

India's economy demonstrated impressive GDP growth of 7.8% in the first quarter of the fiscal year 2026-27. This figure exceeded expectations amid global economic difficulties and the crisis in West Asia, indicating strong economic momentum for the country. However, this statistical result sparked debate.

Former Deputy Finance Minister Subhash Chandra Garg questioned the official GDP data and changes made in previous periods. Congress also accused the government of manipulating these figures. Subhash Garg asserted that the real growth rate of the Indian economy is only 2.6%, although he later revised his forecast to 5% in an interview.

In contrast to these claims, two leading economists, Surajit Bhalla and Montek Singh Alawalia, refuted allegations of GDP data falsification. They emphasized that even with 7.8% growth, India will require faster economic growth to become a developed nation by 2047.

Following the release of new GDP data, former Finance Secretary Subhash Chandra Garg criticized significant adjustments made to the first-quarter figures of the previous year. He noted that the initial GDP at current prices was around 86 lakh crore rupees, but this amount was later reduced to approximately 80 lakh crore rupees in the new GDP series. Garg requested clarification from the government regarding the difference of 6 lakh crore rupees and used this as grounds for doubting the current growth calculation of 7.8%.

Garg's argument was that when comparing old and new figures on different bases, the GDP growth at current prices appears to be less than 2.5%. Nevertheless, the government and economists dismissed his calculations as unfounded, stating that GDP cannot be calculated by comparing data from two different statistical series.

After Subhash Garg's objections, the GDP data became a subject of political discussion. Congress criticized the government over the new GDP series, the GDP deflator index, and changes in past reports. The party stated that the new GDP series showed a decline in India's GDP of approximately 43 lakh crore rupees over four years. The government rejected these claims, explaining that the new GDP series uses 2022-23 as the base year and applies improved data sources and a new calculation methodology. The Ministry of Statistics and Programme Implementation (MoSPI) also confirmed that the correct method is not comparing data from different GDP series to determine growth rates.

Amid ongoing disputes over GDP data, Surajit Bhalla and Montek Singh Alawalia shared their views. Both agreed that there is no convincing evidence that the 7.8% figure is artificially inflated. Economist Nilakanth Mishra, representing India at the World Bank, also did not approve of achieving growth of 2.6% or 2.8% by combining different GDP series.

Surajit Bhalla noted that if the government aimed to show higher GDP, it could have also increased consumption data. However, in the new series, consumption was adjusted downwards. In his opinion, there is currently no evidence that the GDP data has been manipulated.

Separate from the GDP disputes, the most important point was the discussion of the 'Developed India 2047' goal. Although India did record strong growth of 7.8% in the first quarter of the fiscal year 2026-27, according to Surajit Bhalla and Montek Singh Alawalia, one or two quarters of rapid growth are insufficient to guarantee India's transformation into a developed economy by 2047.

Surajit Bhalla believes that to achieve this goal, India needs to maintain double-digit growth for a prolonged period. He positively assessed the strengthening of the investment-to-GDP ratio to about 34% but added that much faster growth is required to increase per capita income in dollar terms.

Montek Singh Alawalia also noted that the Indian economy looks stronger than pessimistic forecasts suggested. However, he believes the current pace is insufficient to realize the 'Developed India 2047' goal, insisting on the need for higher and sustained growth.

According to economists, national development is not just about increasing overall GDP. It is crucial that the growth in per capita income, employment, production, and development benefits reach broad segments of society. Economist Rohit Lamb distinguishes India's development model from those of China and South Korea. According to him, India rapidly transitioned from an agrarian economy to a highly skilled service sector, whereas large...

Despite billions of dollars in announced investments in the data center sector, India's gross domestic product growth may remain limited by 2030, as high import dependence constrains the creation of domestic added value and jobs, reports Moody's Ratings in a report published on Tuesday.

Moody's forecasts indicate that capital expenditures on data centers could contribute about 0.10 percent to India's nominal GDP in 2025 during the construction phase, while investments in additional power generation could add another 0.03 percent. Even after the facilities are fully operational, their contribution is estimated by Moody's to be only 0.13 percent of GDP.

Moody's notes that planned investments and construction employment in India are significant in absolute terms, but small relative to the size of the economy. Although these investments have strategic and local importance, they are 'not yet large enough to substantially change the national growth profile.' The long-term economic effect will depend on whether the investment triggers supplier localization, broader adoption of cloud technologies, growth in digital service exports, and the development of the entire ecosystem.

Limited job growth

Job growth is also expected to be modest, as data centers require significant capital investment. Employment related to construction is estimated to account for about 0.01 percent of industry employment in 2025, increasing to 0.02 percent after the facilities become fully operational. Long-term employment is likely to remain limited and concentrated in highly specialized roles.

Power availability is not a constraint

According to Moody's, power availability is unlikely to become a nationwide obstacle. It is expected that by 2030, data centers will consume less than 5 percent of India's total electricity demand, putting the country in a more favorable position compared to smaller regional markets for absorbing additional load. Nevertheless, timely provision of transmission and distribution connectivity to major data center clusters, including Mumbai, will remain critically important.

The key limiting factor for India is the high intensity of imports in this sector. A significant portion of data center expenditures goes towards importing servers, semiconductors, cooling systems, and specialized IT equipment, which limits domestic added value. Moody's noted that imports related to data centers accelerated since 2023, particularly in India, Thailand, and Vietnam.

India attracts over $250 billion in announced investments. Domestic conglomerates, global technology companies, and small independent firms that have announced investments exceeding $250 billion are betting on the growth sector. Major projects include the Google and Adani project worth $15 billion with a capacity of 1 gigawatt (GW) in Visakhapatnam, as well as the Tata Consultancy Services HyperVault project of similar size valued at $7 billion, announced in October 2025.

Amid increased investor interest in data centers, Finance Minister Nirmala Sitharaman previously announced this year a complete tax holiday until 2047 for foreign cloud service providers who use Indian data centers to host data or run workloads.