India Ratings Raises FY27 GDP Growth Forecast to 6.8%: El Nino, Inflation Pose Risks

India Ratings and Research (Ind-Ra) on Tuesday raised its GDP growth forecast for the Indian economy in 2026-27 by 10 basis points to 6.8 per cent from its estimate of 6.7 per cent projected in May. However, the rating agency warned that an El Nino weather pattern and geopolitical headwinds could weigh on economic momentum, keeping growth 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; weak global trade growth; strong GDP growth in FY26 — the base effect; and notably, the likely El Nino weather pattern and the recent US government announcement of levying 100 per cent tariff on India for buying Russian crude," Ind-Ra said in its mid-year economic outlook report. It lowered its baseline crude oil price assumption for FY27 by $10 to $85 a barrel from its earlier forecast of $95.

Ind-Ra projects agriculture GVA growth to slow to 2 per cent in FY27 from 3 per cent in FY26. The agency sees severe weather risks, particularly El Nino, as the primary constraint on 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. Wholesale price index (WPI) inflation is projected to rise sharply to 8.5 per cent in FY27 from 0.4 per cent in FY26, while consumer price index (CPI) 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 in Q4FY27.

"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 a press conference following the release of the 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. 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 as rural incomes are expected to take a hit due to the adverse impact of El Nino on agriculture.

Gross fixed capital formation (GFCF) is projected to grow 8 per cent in FY27, largely sustained by public sector capital expenditure while the government is expected to stick to its fiscal deficit target of 4.3 per cent of GDP. External risks are also expected 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. Ind-Ra expects the RBI to keep a status quo on policy rates and its monetary policy stance at neutral for the rest of the current financial year.

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