Ind-Ra raises FY27 growth forecast to 6.8%, flags El Niño, West Asia risks

India Ratings and Research (Ind-Ra) on Tuesday upgraded India’s 2026-27 real gross domestic product (GDP) growth forecast by 10 basis points to 6.8 per cent from 6.7 per cent estimated in May, citing lower-than-projected global crude oil prices. However, the rating agency warned that an ongoing El Niño pattern and geopolitical headwinds will temper economic momentum, keeping performance well below the National Statistical Office’s (NSO) provisional estimate of 7.6 per cent for FY26.

“The downside risks to GDP growth in FY27 include geopolitical developments, particularly the unresolved West Asia conflict; high headline inflation; a depreciated currency; weaker-than-expected global trade growth; strong GDP growth in FY26 — the base effect; and notably, the likely El Niño weather pattern and the recent US government announcement of levying 100 per cent tariff on India for buying Russian crude,” the agency elaborated in its mid-year economic outlook report.

Ind-Ra lowered its baseline crude oil price assumption for FY27 to $85 a barrel, down from its earlier forecast of $95 a barrel.

“The change on the positive side is that oil has drifted below what we initially followed,” said Devendra Kumar Pant, chief economist at Ind-Ra, during the press conference following the release of the mid-year report. “For every $10 a barrel drop in oil prices, all else remaining equal, there is a 44 basis point uptick to growth. But monsoon-related aspects have taken away some of that,” he added.

The agency places severe weather risks, specifically El Niño, as the primary constraint on India’s agricultural output and headline consumer prices. “The weak monsoon is already affecting food prices and consumer food price inflation. An adverse base effect would continue to push up food inflation at least until October 2026,” it said.

Ind-Ra projects agriculture GVA growth to dampen to 2 per cent in FY27, down from 3 per cent in FY26.

While Wholesale Price Index (WPI) inflation is projected to jump sharply to 8.5 per cent in FY27, up from 0.4 per cent in FY26, Consumer Price Index (CPI) retail inflation is forecast to average 4.9 per cent. Retail inflation is expected to peak at 5.9 per cent in Q3FY27 before moderating to 5 per cent by Q4FY27.

The agency further expects the RBI to maintain the status quo on both policy rates and the monetary policy stance for the rest of FY27.

Private consumption expenditure, which accounts for more than half of GDP, is expected to grow 7.2 per cent in FY27, slower than 7.7 per cent in FY26. Ind-Ra attributed the moderation to higher inflation, weaker rural incomes due to the impact of El Niño on agriculture and sluggish urban demand.

External risks are seen to remain elevated. The current account deficit (CAD) is projected to widen to 1.5 per cent of GDP in FY27 from 0.6 per cent in FY26.

“From an outlook perspective, we want to highlight concerns around the US announcement to levy up to 100 per cent tariffs on India regarding Russian crude purchases,” said Megha Arora, director, Ind-Ra. “While the US Senate has passed the bill and it is yet to become law, it remains a critical risk factor to monitor for India’s trade trajectory,” she added.

Gross fixed capital formation (GFCF) is projected to grow at 8 per cent in FY27, largely sustained by public sector capital expenditure. Ind-Ra expects the central government to stick to its fiscal deficit target of 4.3 per cent of GDP.