The Fitch Group firm projected India’s GDP growth at 6.7% for FY2026-27, down from an estimated 7.7% expansion in FY2025-26, warning that the economy faces mounting pressure from weakening momentum and an oil shock triggered by the war in West Asia.
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“We maintain our forecast of 6.7 per cent GDP growth during FY2026-27 due to our belief that the effects of last year’s tax reforms will fade as input costs increase in the new fiscal year,” BMI said, adding GDP growth could “slow significantly” due to waning momentum and oil price shock from Iran war.
The agency said tax reforms in GST and income tax introduced in 2025 had helped support growth and offset some inflationary pressures over the past year, but their impact is now beginning to dissipate just as higher fuel and commodity costs start feeding into the broader economy.
BMI, however, slightly upgraded its estimate for FY2025-26 growth to 7.7%, from 7.6% earlier, after projecting the economy expanded 8% year-on-year in the January-March quarter, faster than its previous estimate of 7.8%.
Still, it said recent high-frequency indicators already point to slowing momentum.Also Read: Thali costs rise in April on higher tomato, vegetable oil, LPG prices
Vehicle registrations, for instance, grew 9% year-on-year in April, sharply lower than the 23% growth recorded during the January-March quarter. Electricity generation rose 2.7% in the last quarter, but most of the increase was concentrated in January and February, while electricity consumption growth slowed to just 0.9% in March.
“One factor behind the unchanged FY27 forecast is our assessment that the effects of last year’s tax reforms will dissipate by April-June quarter of 2026,” BMI said.
The report warned that India remains among the most energy-sensitive economies in Asia, making it particularly vulnerable to prolonged spikes in crude prices.
BMI said its models suggest GDP growth could fall by 0.4-0.7 percentage points if Brent crude prices average around USD 90 per barrel.
Crude oil prices surged to USD 105 a barrel on Monday after the United States rejected Iran’s peace proposal, fuelling fears that disruptions around the Strait of Hormuz could persist longer than expected. Oil prices have risen sharply from around USD 73 per barrel before the conflict began on February 28 and had touched a four-year high of USD 126 per barrel on April 30.
The agency said supply disruptions from the Iran conflict have already been factored into its 6.7% growth estimate for FY27, but cautioned that any further escalation in the conflict poses additional downside risks.
“The prospect of the Iran-US conflict escalating in scope presents downside risk to our growth outlook,” BMI said, adding that New Delhi may face difficult choices between higher spending on defence and fuel price stabilisation, and its broader fiscal consolidation plans.
Adding to the uncertainty is the risk of weaker monsoon rainfall.
India’s weather department has forecast “below normal” rainfall during the June-September monsoon season because of El Nino conditions. BMI cited International Monetary Fund estimates showing that a typical El Nino shock can shave around 0.1 percentage point off India’s GDP growth.
“We think this impact could further offset economic momentum inherited from FY2025-26,” BMI said.
Despite the expected slowdown, the report said looser monetary policy could help cushion parts of the economy by supporting capital expenditure and easing borrowing costs, although rising uncertainty and higher input prices are likely to weigh on private investment decisions.