Fitch Lowers India’s FY27 GDP Growth Forecast to 6.4% Amid Middle East Crisis

Fitch Ratings has revised the India’s economic growth forecast downward for the FY27 and citing the rising energy prices and inflationary prices which are triggered by the ongoing Middle East crisis. The agency expects that the India’s Gross Domestic Product (GDP) to grow by 6.4% in the year FY27 which is lower than the earlier projection of 6.7%.

Fitch Lowers The India’s GDP Growth Forecast

As per the Global Economic Outlook, Fitch has revised the India’s FY27 GDP growth estimate to 6.4% which is a reduction of 0.3 percentage points from the March projection.

The forecast also indicates that slowdown from the 7.4% growth recorded in the FY26. According to the agency, the higher energy prices are expected to weaken the household purchasing power and will impact consumer demand and particularly during the second and third quarters of FY27.

Despite the downward revision, India is still expected to remain as the fastest-growing major economies in the world.

Why Has Fitch Reduced the Growth Outlook?

The primary reason behind the downgrade is the sharp rise in the oil prices which resulting from tensions in the Middle East and disruptions in global energy supply chains.

The ongoing conflict involving the United States and Iran has led to significant uncertainty in the energy markets.

Also the rising fuel costs have already pushed up the transportation and production expenses, which could eventually affect the consumer prices across various sectors.

Higher prices will reduce real household incomes and will leaving the consumers with less spending power and potentially slowing economic activity.

Consumer Spending Likely to Slow

Consumer spending remains as one of the strongest pillars of the India’s economic growth.

However, Fitch expects that the rising fuel and energy costs to reduce the disposable incomes and weaken demand.

Households may cut the discretionary spending as essential expenses such as the transportation, electricity and food become more expensive.

The agency also believes that the impact will be most visible during the second and third quarters of FY27 when the inflationary pressures are expected to intensify.

Inflation Expected to Rise

As the India’s inflation rate remains relatively moderate at present but Fitch believes upward pressure is building.

According to the agency, wholesale prices rose by around 8.3% year on year in April, while the Consumer Price Index (CPI) inflation stood at 3.5%.

Fitch expects that the inflation to gradually rise and reach 5.3% by the end of the calendar year due to higher energy prices, base effects and potential weather-related disruptions such as below-average monsoon rainfall and heatwaves.

RBI and Interest Rate Outlook

The Reserve Bank of India has already lowered the its FY27 growth forecast to 6.6% while increasing its inflation projection to 5.1%.

The central bank also maintained the its policy rate at 5.25% in April. However, Fitch expects that the RBI to increase interest rates once during the year and will take it around 5.5%