New Delhi: India’s FY27 economic growth rate is likely to slow from that of the year ended 31 March, due to the West Asia war pushing crude oil to uncomfortable levels, fanning domestic inflation, and eroding the room for monetary easing, according to rating agencies India Ratings and Research (Ind-Ra) and Icra Ltd.
Icra lowered its FY27 gross domestic product () forecast for India to 6.2% from the earlier projection of 6.5% in the face of the energy shock induced by the West Asia war.
India Ratings stated that the domestic economy is likely to expand by 6.7% in FY27, down from 7.6% in the year ended March. This is the agency’s first forecast for FY27 using the 2022-23 base year.
The downgrades highlight Asia’s third-largest economy’s vulnerability to a crude shock. The energy price spiral is complicating the situation for a weakening rupee, sluggish government capital expenditure, subdued industrial output, and the threat of disrupting agriculture from mid-2026—headwinds that have also affected the government’s own 7–7.4% growth target, set before the war broke out.
The Reserve Bank of India (RBI), which held the repo rate at 5.25% in April and projected FY27 growth of 6.9%, is now widely expected to stay on hold at its June review as policymakers wade through the pressures of slowing growth and sticky retail inflation.
“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 (IIP), and notably, the likely El Niño weather pattern from mid-2026,” India Ratings said, quoting Megha Arora, director – Economics.
Oil sensitivity
Icra now assumes crude oil prices to average at US$95 a barrel in the current financial year, above its earlier estimate of $85 a barrel, given the stickiness in price amid the stalemate in West Asia.
Higher fuel and food prices due to the ’s uncertainty and the likely impact of evolving El Niño on agriculture from mid-2026 will pull down GDP growth in FY27, India Ratings said.
A $10 per barrel increase in crude oil prices could reduce GDP growth by 44 basis points, while a 10% reduction in capex could lower GDP growth to 6.0%, said Arora.
RBI in April projected India’s FY27 real GDP growth at 6.9%, saying that further escalation and wider spread of the conflict, heightened volatility in global financial markets and weather-related events weighed on the domestic growth outlook.
Risks to the baseline projections are tilted to the downside, with uncertainty remaining elevated due to the ongoing West Asia conflict, the central bank noted on 8 April, while keeping the repo rate unchanged at 5.25%.
India Ratings also projected that crude oil price may average $110 a barrel in the first quarter and progressively come down to $80 by the fourth quarter of this fiscal, forcing retail prices of petrol and diesel to go up by ₹5 a litre in the June quarter, including the increase implemented on 15 May, and ₹4 a litre each in the subsequent two quarters.
The agency assumes that rainfall is likely to be 92% of the long-period average, leading to the gross value added (GVA) of agriculture to increase by 2.1% in FY27, the agency said. The rupee is expected to average 94.28 to the dollar in the current financial year, depreciating 6.7% annually, it said.
If oil prices average $120 a barrel, growth could decline to 5.6%, it warned.