Tariffs and investment: two wild cards for India’s upside
De Guzman noted that Moody’s baseline forecast was already in the U.S. Also factor in the ongoing tariff uncertainty. If India and the US strike a trade deal that revives exports, GDP could grow faster than forecast.
Another big swing factor: private-sector investment, which has remained soft despite strong narratives around India’s economic transformation.
“If the private sector starts participating in a more meaningful way, complementing the government infrastructure push, India could be positively surprised,” he said.
However, global risks—including geopolitical tensions and weak global demand—also pose potential downside.
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‘India to be among fastest growing economies in 2027 with 6.5% expansion’: Moody’s
Domestic demand will be India’s real growth engine
Moody’s expects India’s growth to be driven largely by strong domestic demand, not exports. The agency believes India is better insulated than export-heavy Asian economies facing tariff wars.
A major tailwind has been record-low food inflation, which has sharply improved purchasing power for rural and low-income households—most vulnerable to changes in food prices.
Low inflation, coupled with tax slab reforms that reduced middle-class liabilities and recent GST changes, are likely to support consumption in the coming quarters.
Private capex: Outlook improving, but still not a big leap
Given the favorable macro conditions—soft inflation, supportive monetary policy and sustained public investment—Moody’s says the private sector has not yet become buoyant.
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While investment activity is taking place, the pace has not accelerated in a meaningful way. “We see a favorable RBI, strong infrastructure building and better connectivity. This will ultimately crowd in private investment,” de Guzman said.
The next 12-18 months will be critical in determining whether corporate balance sheets begin to mobilize capital more decisively.
What areas can be surprised? Moody’s points to domestic services
Moody’s believes export-oriented sectors may remain under pressure due to US tariff uncertainty, but domestic-facing sectors may outperform.
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Sectors best positioned for upside include:
- Consumer Services
- Domestic travel and tourism
- Retail and discretionary use
- Digital and financial services driven by India’s rapidly expanding middle class
Private consumption, which forms the largest share of GDP, is expected to remain strong due to a favorable inflation cycle and continued government support.
Solid growth, with clear room for upside
Moody’s Baseline: India to grow at 6.5% in 2025 and 2026. But improved US-India trade relations, revival in private investment and strong consumer spending will push India ahead of expectations.
In a global environment filled with uncertainty, India’s domestically-led growth story gives it a rare tailwind—which could turn into an upside surprise if key triggers fall into place.
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