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As per the latest report, Ind-Ra upgraded its growth projection for FY27 to 6.8% from 6.7%, driven by the low crude oil prices. Nevertheless, the rating agency also noted that there were potential risks to the economic growth outlook due to an El Niño weather pattern, high inflation rates, geopolitical concerns in West Asia, and weak global trade performance. The new estimate still remains below the 7.6% growth rate provided in provisional estimates of the National Statistical Office for FY26.
Why Ind-Ra Increased Its Growth Estimate?
The Ind-Ra baseline crude oil price assumption for FY27 has been reduced from $95 to $85 per barrel.
According to Ind-Ra, each reduction in crude oil prices of $10 per barrel with all else equal increases GDP growth by 44 basis points. Nevertheless, adverse weather conditions are partially negating this effect.
The growth forecast for agriculture GVA in FY27 is expected to be 2%, compared to 3% in FY26.
El Niño and Inflation as the Biggest Risks
Ind-Ra believes that El Niño and unfavorable weather conditions are the main limitations on the agricultural sector’s output and prices.
The Ind-Ra estimates that food prices will remain under pressure at least till October 2026. The average CPI inflation rate for FY27 is expected to be 4.9% with a peak of 5.9% in Q3 and a drop to 5% in Q4.
The WPI inflation rate is expected to grow to 8.5%, compared to 0.4% in FY26.
Consumption and Investment Expectations
India’s private consumption, which forms more than half of its GDP, will rise by 7.2% in FY27, marginally lower than 7.7% recorded in FY26.
Ind-Ra noted that the moderation was because of inflationary pressure, falling rural incomes due to risk factors in agriculture and slowing urban demand.
India’s gross fixed capital formation will increase 8%, primarily driven by capital expenditure from the public sector.
External and Geopolitical Challenges
India’s current account deficit is projected to rise to 1.5% of its GDP in FY27, compared to 0.6% in FY26.
West Asia dispute, currency devaluation, poor performance in world trade and possible US action against India because of purchasing of Russian oil were cited by Ind-Ra as significant risks to India.
Ind-Ra forecast that India’s central bank will stick with the policy interest rate and its policy throughout FY27.
