THEBUSINESSBYTES BUREAU
NEW DELHI, AUGUST 18, 2026
India’s economic growth story is set for a measured slowdown
in FY27, with rising geopolitical uncertainty, currency weakness and
weather-related risks threatening to put pressure on an otherwise resilient
domestic economy. India Ratings & Research (Ind-Ra) on Tuesday projected
GDP growth at 6.8 per cent for FY27, down from 7.6% in FY26, warning that
elevated fuel and food inflation could constrain the pace of expansion.
The latest forecast, however, is marginally more optimistic
than Ind-Ra’s 6.7 per cent projection made in May 2026, signalling that the
agency continues to see underlying strength in the Indian economy despite a
more challenging external environment. The Reserve Bank of India (RBI), earlier
this month, also raised its FY27 growth forecast from 6.6 per cent to 6.7 per
cent, citing the resilience of domestic economic activity.
Ind-Ra’s outlook points to a delicate balance between lower
crude oil prices and emerging inflationary pressures. The agency has lowered
its average crude oil assumption for FY27 to $85 per barrel, compared with $95 per
barrel in its May forecast. Cheaper oil could provide relief to India’s trade
balance and current account by reducing the country’s import bill. Yet, the
potential benefits could be diluted by food inflation if El Niño conditions
disrupt agricultural output.
The agency expects the rupee to average ₹93.98
against the US dollar in FY27, representing a 6.4 per cent year-on-year depreciation, although this is
slightly stronger than its earlier estimate of ₹94.28. Ind-Ra, a Fitch Group
subsidiary, also estimates that capital inflows through foreign currency non-resident bank
deposits and external commercial borrowings could total around $70 billion,
offering some support to external financing conditions.
Ind-Ra has projected quarterly GDP growth at 6.9 per cent in
April-June, 6.6 per cent in July-September, 6.7 per cent in October-December
and 6.9 per cent in January-March. These estimates compare with the RBI’s
corresponding projections of 7 per cent, 6.4 per cent, 6.5 per cent and 6.8 per
cent.
Ind-Ra Chief Economist and Head of Public Finance Devendra
Pant said the Indian basket crude oil price averaged $101.31 per barrel during
the June quarter of FY27 and $96.49 per barrel during April-July 2026,
highlighting the volatility that businesses and policymakers are navigating.
“Our crude oil price
assumption for FY27 is USD85/bbl. 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,” Pant
said.
The inflation outlook itself presents a significant challenge.
Ind-Ra expects retail inflation to average 4.9 per cent in FY27, sharply higher
than the exceptionally low 2 per cent recorded in FY26. The combination of
higher food prices, fuel-related pressures and a weaker rupee could squeeze
household purchasing power and raise input costs for businesses.
The country’s external position is also expected to come under some pressure, with Ind-Ra forecasting the current account deficit at 1.5 per cent of GDP in FY27, compared with just 0.6 per cent in FY26. While lower crude prices could cushion the import bill, a weaker currency and potentially higher commodity prices could offset part of that advantage.
On the fiscal front, the government’s 4.3 per cent of GDP fiscal deficit target for FY27 remains challenging, according to Ind-Ra. Subsidies for liquefied petroleum gas and fertilisers could add pressure to government finances. Strong direct tax collections and non-tax revenues may provide support, but weaker-than-expected indirect tax collections could make the target harder to achieve.
