India Ratings & Research (Ind-Ra) has downgraded India's GDP growth to 6.7% for FY27 amid increased geopolitical tensions, high crude oil prices, inflationary pressures, poor industrial growth and potential El Niño impact on agriculture. The estimate follows India's economy, which is estimated to grow by 7.6% in FY26.
The agency's outlook is less optimistic than that of the Reserve Bank of India (RBI), which had recently projected GDP growth of 6.9% for FY27.
According to Ind-Ra, the uncertainty over the West Asia war may keep oil prices high, adding to the inflationary pressure on the Indian economy.
The agency assumed the average oil price of $95 per barrel for FY27. It is estimated that for every $10 rise in crude oil prices, GDP growth in India can drop by around 44 basis points.
Recently, Brent crude prices have traded above $100-$110, due to fears of possible energy supply disruptions and tensions in the Strait of Hormuz.
As India is one of the biggest oil importers, the country is vulnerable to fluctuations in global oil prices.
Even as fuel prices have moved up in recent months in India, Ind-Ra forecasts retail inflation will stay within RBI's tolerance limit and is pegged at 4.4% in FY27 as against RBI's estimate of 4.6%.
The agency noted that there will be more pressure on household consumption and rural demand due to higher prices of food and fuel, and the potential impact of the likely El Niño weather pattern from mid-2026.
Ind-Ra Director - Economics Megha Arora said ‘Major headwinds include geopolitical developments, particularly the West Asia conflict, high headline inflation, a depreciated currency from weak capital inflows, weaker-than-expected capex especially by the government to reduce fiscal risks, weak global trade growth, strong FY26 growth (base effect), low industrial production as measured by the Index of Industrial Production (IIP), and notably, the likely El Nino weather pattern from mid-2026’.
The Indian rupee is expected to average at Rs. 94.28 against the US dollar as per Ind-Ra during FY-27, reflecting a year-on-year decline of 6.7%. The rupee recently hit a fresh low of Rs. 96.96 amid global uncertainty and weak capital inflows.
Weaker government capital expenditure may also be an additional risk to growth, the agency added. Ind-Ra estimates a 10% decline in government capex, which would bring India's GDP growth down to around 6%.
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Instead of direct cash transfers, Ind-Ra expects the government to implement some targeted measures, including credit facilities and credit guarantee schemes that will help small businesses and consumers manage the impact of higher fuel and commodity prices.
El Niño conditions are also expected to have a greater impact in the July-September quarter of FY27, which will impact agriculture output and rural consumption further, the agency expects.