India’s economic growth could slow closer to 6 per cent in fiscal year 2027 if geopolitical tensions in West Asia persist and average crude oil prices climb to around USD 110 per barrel, CareEdge said in a report, warning of mounting risks to consumption, investment and exports.
The ratings and analytics firm said India’s gross domestic product (GDP) growth is projected at 6.7 per cent in FY27 under its base-case assumption of an early resolution to the West Asia crisis and average crude prices of USD 90 per barrel.
However, a prolonged conflict and sustained rise in energy prices could further weaken momentum.
“However, if the geopolitical conflict persists for a longer period and average crude prices rise to around USD 110/bbl, growth could slow further and move closer to 6% in FY27,” CareEdge said in its GDP preview report.
The firm said India’s economy had remained partially insulated from geopolitical disruptions in the fourth quarter of FY26 as the first two months of the quarter were largely unaffected by tensions. Companies also likely relied on inventories to absorb higher input costs, while the government and oil marketing companies absorbed much of the rise in energy prices before passing costs to consumers in the first quarter of FY27.
CareEdge projected GDP growth between 6.8 per cent and 7 per cent in Q4 FY26, while gross value added growth is expected at 7.2 per cent.
The report said escalating geopolitical tensions in West Asia towards the end of February disrupted the Strait of Hormuz and pushed up global energy prices, adversely affecting India due to its dependence on imported oil and gas.
India’s total oil and gas import dependency is estimated at around 4.2 per cent of GDP, of which reliance on West Asia accounts for roughly 2 per cent, CareEdge said.
The firm expects growth momentum to weaken further in Q1 FY27 as the impact of the crisis spreads across sectors. It also flagged the possibility of El Niño conditions as a downside risk, particularly for agriculture, amid elevated fertiliser and input costs.
CareEdge noted that the India Meteorological Department revised its rainfall forecast downward to 90 per cent of the long-period average in May from 92 per cent in April, adding to concerns around rural output.
Higher energy prices gradually passing through to consumers could also weigh on real incomes and consumption demand, it said.
Private final consumption expenditure growth is expected to ease to around 7 per cent in Q4 FY26 from 8.7 per cent in the previous quarter, reflecting weaker urban demand even as rural consumption remains relatively resilient.
The report attributed softer urban consumption partly to slower hiring in the information technology sector, while favourable agricultural performance is expected to support rural spending.
Investment activity is also likely to moderate, CareEdge said, citing weaker public capital expenditure and heightened global uncertainty affecting private investment decisions.
Central government capital expenditure contracted 23.4 per cent in Q3 FY26 and posted modest growth of 11.7 per cent during the first two months of Q4 FY26, which the firm said may weigh on capital formation.
Export growth also slowed to 2 per cent in Q4 FY26 while import growth remained relatively stable at 7.4 per cent, suggesting a worsening contribution from external demand to overall GDP growth.
Sectorally, CareEdge expects manufacturing growth to moderate to 8.7 per cent in Q4 FY26 from 9.7 per cent in the previous quarter, while services sector growth is projected to slow to 8.5 per cent from 9.5 per cent amid weaker travel activity, export momentum and disruptions linked to energy shortages.
Agricultural growth is projected to improve marginally to 1.6 per cent from 1.4 per cent, supported by stronger tractor sales and agricultural credit growth, according to the report. |
