Ratings Agencies Lower GDP Growth On Crude Prices, Lower Rainfall
India Ratings and Research projects GDP growth at 6.7% yoy in FY27 against 7.6 per cent in FY26.This is based on the baseline projection that average yearly crude prices will be $95/bbl. If the average prices move up to $110/bbl, growth would be slower at 6 per cent and if prices firm up to $120/bbl, the growth will further slow to 5.6 per cent
Chennai: Considering the West Asia conflict, higher crude prices and likely impact of El Nino on agriculture, rating agencies have lowered India’s GDP forecast for FY27. India Ratings projects growth to be between 6.7 – 5.6 per cent depending on the average crude prices for the fiscal, while ICRA estimates it to be 6.2 – 5.8 per cent.
India Ratings and Research projects GDP growth at 6.7% yoy in FY27 against 7.6 per cent in FY26.This is based on the baseline projection that average yearly crude prices will be $95/bbl. If the average prices move up to $110/bbl, growth would be slower at 6 per cent and if prices firm up to $120/bbl, the growth will further slow to 5.6 per cent. Likewise, inflation can range between 4.4 per cent and 6.8 per cent, depending on crude prices.
“Major headwinds include geopolitical developments, particularly the West Asia conflict, high headline inflation, a depreciated currency from weak capital inflows, weaker-than-expected capex especially by the government to reduce fiscal risks, weak global trade growth, strong FY26 growth (base effect), low industrial production as measured by the Index of Industrial Production (IIP), and notably, the likely El Niño weather pattern from mid-2026”, said Megha Arora, Economist and Director, Public Finance, Ind-Ra.
The agency finds that pump prices of petrol and diesel will increase by Rs 5/litre in the ongoing quarter, Rs 4/litre in Q2 FY27, and Rs 4/litre in Q3 FY27 – a total increase of Rs 13/litre.
According to ICRA, crude oil prices will average at $95/bbl in FY2027 against its prior estimate of $85/bbl. The baseline forecast for the FY2027 GDP growth is expected to be slower at 6.2 per cent from the 6.5 per cent expected earlier. If crude prices average at $105/bbl, GDP growth could be 5.8 per cent.
Similarly, CPI inflation would move up from 2.1% per cent in FY26 to 4.7 per cent in the baseline scenario and 5 per cent if crude prices move up to $120/bbl.
Apart from crude prices, rainfall assumed at 92% of the long-period average, will see gross value added (GVA) of agriculture increase by just 2.1 per cent in FY27, finds Ind Ra. The potential development of El Nino conditions and weak monsoon forecast for 2026 have dulled the agricultural outlook and rural demand prospects for H2 FY2027, said ICRA.
Ind Ra also finds that a 10 per cent reduction in government capex from the base case will also pull down FY27 GDP growth. Rupee-dollar exchange rate to average Rs 94.28, a depreciation of 6.7 per cent yoy in FY27.
