India GDP Growth Seen Slowing to 6.5% in FY27 Amid Energy Price Pressures: ICRA

India GDP Growth Seen Slowing to 6.5% in FY27 Amid Energy Price Pressures: ICRA​

Growth Outlook Weakens on Rising Energy Costs and Global Uncertainty​

New Delhi, March 30: ICRA on Monday projected that India’s GDP growth will moderate to 6.5 percent in the financial year 2026 to 2027, down from 7.6 percent in the current fiscal year, citing elevated energy prices and concerns over energy availability linked to the ongoing West Asia conflict.

The rating agency’s forecast is based on an assumed average crude oil price of USD 85 per barrel during FY27, a level that is expected to exert pressure on the broader macroeconomic environment.

Current Account Deficit Expected to Widen​

ICRA indicated that India’s current account deficit is likely to widen significantly to 1.7 percent of GDP in FY27, compared to 1 percent in the ongoing fiscal year. The widening gap reflects higher import costs, particularly for energy commodities.

Inflation Risks and Consumer Sentiment Under Pressure​

The agency highlighted that global energy supply disruptions stemming from the West Asia conflict pose upside risks to inflation. These pressures could feed into household inflation expectations and weigh on consumer sentiment in the near term.

At the same time, heightened uncertainty surrounding the duration of the conflict is expected to impact economic confidence, especially for an import-dependent economy like India that relies heavily on crude oil, natural gas, and fertilizers.

High-Frequency Indicators Show Mixed Signals​

While high-frequency indicators for January and February 2026 have shown favorable trends, ICRA cautioned that the evolving geopolitical situation continues to cloud the near-term outlook.

If the conflict persists for a prolonged period, the impact could broaden across sectors due to rising input costs, which may affect corporate profitability.

Policy Outlook: RBI Likely to Hold Rates​

ICRA expects an upward trend in consumer price inflation in FY27, with risks tilted to the upside. In this context, the Monetary Policy Committee is likely to maintain policy rates for an extended period despite softer growth expectations.

However, the Reserve Bank of India may continue to manage liquidity conditions during the fiscal year to support the economy.

Domestic Factors May Offer Some Support​

Despite the external pressures, ICRA noted that certain domestic factors could support consumption. These include developments around tariffs, lower GST rates, potential policy rate cuts, subdued food inflation, and positive trends in the agricultural sector.