S&P Global Ratings on Wednesday projected India's real GDP growth to slow to 6.6% in the fiscal year ending March 2027, citing energy stress, expectations of a sub-par monsoon, and slowing global growth. This compares with 7.7% growth recorded in the 2025-26 fiscal and 7.1% in 2024-25.
Key Factors Behind the Slowdown
The rating agency highlighted that the impact of El Nino has weakened monsoon rains, with the rainfall deficit widening to 43% by June 22. To address this, the government has drawn up state-wise contingency plans recommending alternative crops suited to deficient rainfall conditions. Additionally, India imports 88% of its crude oil needs, making it vulnerable to global price rises that increase the import bill and stoke inflation.
S&P's FY27 growth estimate aligns with the Reserve Bank of India's (RBI) projection of 6.6%.
Energy Stress and Inflationary Pressures
In its report titled 'Economic Outlook Asia-Pacific Q3 2026: AI-Exposed Markets To Outperform', S&P noted that the impact of energy stress from the West Asia conflict is visible, as the industry faces a substantial rise in input costs and suppliers' delivery time. Higher fertiliser prices weigh on food production and raise food prices. Rising inflation is eroding purchasing power, thus depressing growth.
S&P said consumer inflation would be 0.5-0.6 percentage points higher in the third quarter in India, and it will rise to 5.1% in the current fiscal year as manufacturers pass on higher energy costs to consumers, alongside recent increases in prices of petrol, diesel, and cooking gas.
Policy Rate Hike Expected
"We expect a policy rate hike in the second half of this fiscal year," S&P said. The agency also noted that the region's outlook is shaped by resilient global activity, energy market stress, and an AI-driven tech export boom.
