India’s economic growth to slow to 6.7% in FY27 amid oil price shock from Iran war: BMI

BMI, a Fitch Group firm, has forecasted that India’s economic growth to slow to 6.7% in the current fiscal (FY27), from 7.7% growth in FY26 on account of waning momentum and oil price shock from Iran war, though tax reforms offer partial offset. It also said that the prospect of the Iran-US conflict escalating in scope presents downside risk to its growth outlook and India must balance spending needs on defence and fuel price stabilisation against fiscal consolidation agenda.

It said the tax reforms in GST and income tax carried out in 2025 will partly offset effects of cost-push inflation, and added that looser monetary policy will support capital spending, as increased uncertainty amid the war and higher input prices hurt investment.

The agency estimates that India's economy grew 8% y-o-y in the January-March quarter of 2026, faster than its original 7.8% projection. It has revised its growth forecast for 2025-26 upwards by 0.1 percentage points to 7.7%. though, it maintained its forecast of 6.7% GDP growth during FY27 due to their belief that the effects of last year's tax reforms will fade as input costs increase in the new fiscal year.

It said one factor behind the unchanged FY27 forecast is its assessment that the effects of last year's tax reforms will dissipate by April-June quarter of 2026.

It said such waning is already apparent in the vehicle registrations data, showing new registrations grew 9% y-o-y in April after rising 23% in January-March. Likewise, while electricity generation grew 2.7% y-o-y last quarter, the growth was driven by power demand in January-February. During March, electricity consumption rose by a mere 0.9% y-o-y.

It also anticipates restricted supply of energy and food in FY27 to slow consumption growth while raising price inflation. It said that conflict in Iran has already curtailed supplies and that has already been factored in the 6.7% growth estimate for FY27. However, India's weather department is also predicting 'below normal' rainfall during this year's monsoon (June-September) due to El Nino.

BMI said its models indicate that GDP growth will fall by up to 0.4-0.7 percentage points if the price of Brent Crude rises to around $90/bbl. The size of this impact makes India's economy amongst the most sensitive to changes in energy prices within Asia.

Crude prices have jumped to $105/barrel after the United States rejected Iran's peace proposal, rekindling fears that the blockade of the Strait of Hormuz will continue for a longer time. The prices have jumped from about $73/ barrel level prevailing before the war started on February 28. Crude prices touched a 4-year high of $126/barrel on April 30.