India’s economic growth is projected to slow to 6.7 per cent in FY2026-27 from an estimated 7.7 per cent in FY2025-26, amid rising crude oil prices linked to the Iran conflict and signs of weakening domestic demand, BMI, a Fitch Group firm, said on Monday.
The firm said escalating tensions involving Iran pose downside risks to India’s growth outlook, with higher energy prices expected to push up inflation and hurt consumption and investment activity.
BMI said the government would also need to balance higher spending requirements on defence and fuel price stabilisation with its fiscal consolidation plans.
The report noted that tax reforms introduced in 2025, including changes in GST and income tax, are expected to partly cushion the impact of cost-push inflation. It added that looser monetary policy could support capital spending despite uncertainty arising from the conflict and higher input costs.
BMI estimated India’s economy grew 8 per cent year-on-year in the January-March quarter of FY26, slightly above its earlier projection of 7.8 per cent. It also revised its FY26 growth forecast upward by 0.1 percentage point to 7.7 per cent.
However, the firm retained its FY27 growth forecast at 6.7 per cent, saying the benefits of last year’s tax reforms are likely to fade as input costs rise in the new fiscal year.
High-Frequency Indicators Weaken
BMI said signs of slowing momentum are already visible in key indicators. Vehicle registrations rose 9 per cent year-on-year in April, compared with 23 per cent growth recorded during the January-March period.
Electricity generation increased 2.7 per cent year-on-year in the previous quarter, though BMI said the growth was largely driven by higher demand in January and February. Electricity consumption in March rose only 0.9 per cent from a year earlier.
The firm said restricted supplies of energy and food in FY27 could further slow consumption growth while adding to inflationary pressures.
BMI added that disruptions linked to the Iran conflict have already been factored into its FY27 estimate, though further escalation remains a key downside risk.
The report also flagged weather-related concerns, with India’s weather department forecasting below-normal monsoon rainfall during June-September due to El Nino conditions.
Citing International Monetary Fund estimates, BMI said a typical El Nino weather shock could reduce India’s GDP growth by around 0.1 percentage point.
Crude Price Spike A Key Concern
BMI said its models show India’s GDP growth could decline by 0.4-0.7 percentage points if Brent crude prices rise to around USD 90 per barrel, making the country among the most energy-sensitive economies in Asia.
Brent crude prices climbed to around USD 105 per barrel on Monday after the United States rejected Iran’s peace proposal, raising concerns over continued disruption in the Strait of Hormuz.
According to the report, crude prices have risen sharply from about USD 73 per barrel before the conflict began on February 28 and touched a four-year high of USD 126 per barrel on April 30. |
