India Ratings and Research Pvt. Ltd. (Ind-Ra) on Tuesday estimated India’s gross domestic product (GDP) growth to moderate to 6.8% in 2026-27 due to higher fuel and food inflation stemming from the war in West Asia, a weak currency, and the likely impact of El Niño on agriculture.
Though slower than the National Statistical Office’s (NSO) provisional estimates of 7.6% for FY26, the agency’s FY27 projection is higher than its May forecast of 6.7%.
The upward revision of growth for the current fiscal year comes just days after the Reserve Bank of India also revised the country’s growth projections to 6.7% from 6.6%, citing the resilience of the domestic economy.
Downside risks
Ind-Ra said downside risks include geopolitical developments, particularly the unresolved West Asia war; high headline inflation; a depreciating currency; and weaker-than-expected capex, especially by the government, to minimize fiscal risks.
It added that weak global trade growth, strong GDP growth in FY26—the base effect—and notably, the likely weather pattern and the recent US government announcement of levying 100% tariff on India for buying Russian crude may also weigh on India’s growth.
The ratings agency’s GDP forecast of 6.8% assumes oil price settling around $85/barrel (bbl) in FY27, lower than its May assessment of crude price of $95 a barrel.
A lower oil price, a weaker El Niño than the current assessment, and an improvement in capital flows could result in higher GDP growth than the current estimate, Ind-Ra said.
of the Indian basket averaged $101.31/bbl in the June quarter and $96.49/bbl for April-July 2026.
“Lower oil prices positively impact the Indian economy by reducing the trade/current account deficit (CAD). However, higher inflation due to El Niño may limit growth upside from lower oil prices,” said Devendra Pant, chief economist and head of public finance, Ind-Ra.
“The FY27 fiscal deficit target of 4.3% remains challenging due to subsidies on liquefied petroleum gas and fertilizers. While direct tax collection and non-tax revenue may support achieving the fiscal deficit target, indirect tax collection may pose challenges,” Pant added.
Macro expectations
Ind-Ra has also assumed that petrol and diesel pump prices would remain unchanged, while rainfall would be around 94% of the long-period average during August and September 2026, translating into seasonal rainfall at 90.6% of normal.
It has also assumed the Indian rupee-dollar exchange rate to average ₹93.98, compared to ₹94.28 in May 2026, a 6.4% year-on-year depreciation, in FY27, and capital flows amounting to $70 billion under foreign currency non-resident (bank) (FCNR(B)) and external commercial borrowings (ECBs).
Ind-Ra has estimated FY27 nominal GDP growth at 10.4%, better than 8.9% in FY26, due to higher inflation. While real GDP growth is likely to slow in FY27, higher inflation will translate into higher GDP deflator growth of 3.4% on-year, compared to 1.1% seen in FY26.
With regards to growth, the agency estimates quarterly GDP growth at 6.9%, 6.6%, 6.7%, and 6.9% for 1QFY27, 2QFY27, 3QFY27, and 4QFY27, as against RBI’s forecast of 7.0%, 6.4%, 6.5%, and 6.8%, respectively.
For the next fiscal year (FY28), Ind-Ra has estimated real GDP growth to improve by 20-50 basis points relative to its FY27 forecast.
The agency also estimates retail inflation at 4.9% and wholesale price index (WPI) inflation at 8.5% for FY27, compared with its May forecast of 5.0% for both. In FY26, retail and WPI inflation stood at 2.1% and 0.7%, respectively, compared with 4.6% and 2.3% in FY25.
It expects the Union government to continue to focus on fiscal consolidation. The government projects a fiscal deficit of 4.3% in FY27, compared to 4.4% in FY26.
“Achieving this may be challenging due to the expectations of higher fuel and fertilizer subsidies due to the West Asia crisis, reduced excise duty on petrol and diesel to mitigate the impact of increased energy prices to consumers, and likely monetary support to counter the El Niño’s impact,” Ind-Ra said.
The ratings agency expects government intervention in response to the West Asia war to involve credit measures, such as credit guarantees, rather than direct spending, thereby easing pressure on the current fiscal position. However, direct cash support to mitigate the adverse impact of El Niño cannot be fully ruled out.
Ind-Ra expects the CAD to widen to 1.5% of GDP in FY27, from 0.6% in FY26 and FY25, due to more expensive energy imports amid higher energy prices and currency depreciation. Higher commodity prices are also likely to widen the CAD and exert downward pressure on the Indian rupee.
The agency expects the external balance, comprising the current account and net foreign direct investment, to more than double to a deficit of 1.2% of GDP in FY27, from 0.5% in FY26 and 0.6% in FY25.