India’s GDP to grow 6.5-7% annually through FY27, supported by infrastructure and consumption: Report

S&P Global Ratings forecasts India’s GDP growth to remain strong through FY 2027

India’s GDP is projected to grow at an impressive rate of 6.5-7% annually through fiscal years 2025-2027, driven by strong infrastructure development and rising private consumption, according to a new report by S&P Global Ratings.

The report highlights that India’s robust economic growth prospects will continue to support the stability of its financial institutions and the banking sector’s asset quality. Key drivers of this growth include government infrastructure spending and an increase in consumer demand, which are expected to provide a solid foundation for the country’s economic expansion.

“Structural improvements and favorable economic prospects will enhance the resilience of India’s financial institutions,” the report states. “Higher demand, coupled with stronger bank capitalization, should boost bank loan growth, while the Reserve Bank of India’s (RBI) regulatory measures will strengthen the financial system in the medium term.”

RBI Governor Shaktikanta Das had earlier stated that India’s growth story remains strong, with consumption and investment demand gaining momentum. He projected India’s real GDP growth for FY 2024-25 to be around 7.2%.

S&P Global Ratings forecasts India’s GDP growth to remain strong through FY 2027, backed by infrastructure development, robust consumption, and a resilient banking sector. While there are some external risks and increased regulatory compliance costs, the overall outlook for India’s economy and financial system remains positive.

Banking sector outlook

The report also notes positive developments in the Indian banking sector. It forecasts that the proportion of weak loans in Indian banks will decrease to around 3% of total gross loans by March 31, 2025, down from an estimated 3.5% as of March 31, 2024. This decline is attributed to healthier corporate balance sheets, stricter underwriting standards, and improved risk management practices.

Retail loans are expected to remain a key area of growth, with delinquencies in this segment remaining manageable. The report suggests that Indian banks have adopted healthy underwriting standards, ensuring stability in the retail loan sector.

Challenges and regulatory focus

Despite the optimistic outlook, the report also notes that external uncertainties, such as global economic factors, could delay growth in capital expenditure, particularly in the corporate sector. However, corporate borrowing has been picking up pace, which is seen as a positive sign for economic growth.

Additionally, the report underscores the increasing regulatory scrutiny from the RBI, which has been imposing heavier penalties and tightening its focus on areas like technology, customer complaints, data privacy, governance, and know-your-customer (KYC) requirements. This push for greater transparency and compliance is expected to improve the financial system’s overall integrity, though it may lead to higher compliance costs for financial institutions.

“We expect loan growth to slightly outpace nominal GDP, with retail loans seeing the fastest expansion,” the report concludes, while also noting that corporate borrowing momentum is strengthening.

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