ICRA cuts India's FY27 GDP growth forecast to 6.2% on West Asia oil shock

Rating agency ICRA on Tuesday trimmed its baseline forecast for India’s economic growth in 2026-27 to 6.2% from 6.5% earlier, citing persistently elevated crude oil prices amid the ongoing West Asia crisis.

The agency said it now expects crude oil prices to average around USD 95 per barrel in FY27, compared with its earlier estimate of USD 85 per barrel, as geopolitical tensions in West Asia continue to keep prices sticky.

“Consequently, we have pared our baseline forecast for the FY27 GDP growth (at constant 2022-23 prices) to 6.2% from the 6.55 expected earlier,” ICRA Chief Economist Aditi Nayar said.

The agency expects gross domestic product (GDP) growth to moderate to 7% in the January-March quarter of FY26, lower than the National Statistical Office’s implicit estimate of 7.3% and down from 7.8% in the October-December quarter.

“The early impact of the West Asia crisis is likely to pull down India’s GDP growth to 7.0% in Q4 FY2026,” ICRA said in a note.

ICRA estimates full-year GDP growth for FY26 at 7.5%, marginally below the official estimate.

The rating agency said improving growth in rabi crop output, mining, electricity generation and most services indicators supported economic activity in the fourth quarter.

However, slower manufacturing volumes, contraction in exports and early signs of margin pressure due to the West Asia fallout likely weighed on industrial performance.

Agriculture, forestry and fishing gross value added (GVA) growth is projected to rise to around 2.1% in Q4 FY26 from 1.4% in the previous quarter, aided by higher rabi output of rice, wheat and coarse cereals despite erratic weather.

Industrial GVA growth is expected to slow to 7.3% from 9.7% in Q3 FY26.

Manufacturing GVA growth is likely to decelerate sharply to 8-9% from 13.3%, while mining, utilities and construction are expected to post modest improvements.

Services sector growth is projected to ease to 8.5% in Q4 FY26 from 9.5% in the preceding quarter, with slower expansion in financial, real estate and trade-related services.

ICRA said the outlook remains vulnerable to geopolitical developments and commodity price movements, especially crude oil, which could affect inflation, corporate profitability and overall economic momentum.