Moody’s Ratings has projected that India’s economy will grow by 6.5% in the fiscal year 2025-26, maintaining its position as the fastest-growing among both advanced and emerging G-20 nations. This growth is attributed to recent tax measures and ongoing monetary easing policies.
In its report on emerging markets, Moody’s highlighted that these economies face uncertainties due to shifts in U.S. policies, which could influence global capital flows, supply chains, trade, and geopolitical dynamics. Despite these challenges, large emerging markets like India possess the resilience to navigate such turbulence.
The agency also forecasts that India’s inflation rate will average 4.5% in the current fiscal year, down from 4.9% in the previous year. This anticipated moderation in inflation is expected to bolster economic stability.
To stimulate economic activity, the Indian government has increased the income tax rebate to ₹12 lakh from ₹7 lakh in the 2025-26 budget, providing approximately ₹1 lakh crore in tax relief to the middle class. Additionally, the Reserve Bank of India reduced interest rates by 25 basis points to 6.25% in February and is anticipated to implement further cuts in its upcoming monetary policy review.
Moody’s noted that while uncertainties in U.S. policies may raise the risk of capital outflows, large emerging markets such as India are well-positioned to attract and retain global capital. Factors contributing to this resilience include India’s substantial and domestically oriented economy, deep domestic capital markets, credible policy frameworks, and significant foreign exchange reserves.
Furthermore, India’s external vulnerability indicator stands at 61%, reflecting a relatively lower susceptibility to external financial shocks. The country’s higher proportion of domestic currency-denominated external debt also provides insulation from exchange rate risks.
Overall, Moody’s anticipates that while emerging market growth may decelerate in 2025-26, India is poised to maintain robust economic performance, underscoring its resilience amid global economic fluctuations.
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