Economists Cut India’s GDP Growth Forecast on Oil Price Shock
Key Takeaways
- •A Reuters poll now expects India’s GDP growth to ease to 6.6% in the fiscal year ending March 2027.
- •That forecast is one percentage point below the 7.7% growth recorded in the previous fiscal year.
- •Economists said government spending has supported the economy while private investment has stayed weak.
- •Higher oil prices are seen as a risk to India’s current account, government finances, transport costs, manufacturing, and inflation.
- •The IMF has cut its India growth forecast, citing higher energy prices and related downside risks.
The surge in oil prices and slower private investment are weighing on India’s economic growth, which economists now expect to reach 6.6% in the fiscal year ending March 2027, according to a Reuters poll released on Tuesday. That forecast is a full percentage point below the 7.7% GDP growth recorded in the previous fiscal year.
Nearly three dozen economists were surveyed between July 21 and 27. Some said the underlying pace of activity has been weaker than headline figures have suggested over the past five months since the Middle East crisis began.
India’s economy has continued to rely on government spending while private investment has remained subdued amid the crude-price shock and the still uncertain impact of higher oil prices on the country’s economy, current account balance, and government finances. That makes the oil market an important input for India’s broader macro outlook, given the country’s dependence on imported crude and the knock-on effects that higher energy costs can have across transport, manufacturing, and inflation pressures.
Upasana Chachra, chief India economist at Morgan Stanley, said weaker global growth could discourage Indian companies from expanding capacity and investment.
“Even where policy support is in place, firms may defer large capex decisions if demand visibility weakens,” Chachra told Reuters.
Last week, Ranil Salgado, the International Monetary Fund’s resident representative for India and Bhutan, said India’s growth in the 2026/2027 fiscal year could be lower than previously expected because of higher oil prices following the renewed escalation of the Middle East war and the El Niño weather phenomenon.
“The downside risks are probably twofold,” Salgado told Reuters in an interview. “One is that the war is already starting to expand again, and that has implications for oil prices,” he said, adding that the other risk was El Niño, which could result in a poor monsoon.
Earlier this month, the IMF cut its forecast for India’s GDP growth by 10 basis points to 6.4% for the fiscal year ending March 31, 2027, from 6.5% expected in April, citing higher energy prices.
By Charles Kennedy for Oilprice.com