India Ratings on Tuesday projected FY27 growth at 6.9%, easing from an estimated 7.4% in FY26, but said domestic reforms will help the economy withstand mounting global uncertainties, especially those arising from higher US tariffs.
Measures such as the income tax cut, GST rationalisation, and recently signed free trade agreements with Oman, the UK and New Zealand would provide resilience.
India Ratings flags five major headwinds
Outlining the risks, India Ratings flagged five major headwinds: a possible El Nino pattern from mid-2026, pressure on the rupee from weak capital flows, sluggish global trade, the base effect of strong FY26 growth, and slower growth in net production taxes due to GST rationalisation.
“Goldilocks situation to persist in FY27 with stable growth and low inflation,” India Ratings chiuef economist Devendra Kumar Pant.
Private Final Consumption Expenditure (PFCE), which accounts for nearly 56% of GDP, is expected to grow 7.6% in FY27, supported by low inflation, rising real wages, tax relief and GST reforms. After recovering from 5.6% in FY24 to 7.2% in FY25, consumption momentum has remained steady in FY26, aided by resilient rural demand. Strong agricultural growth over the past five quarters and benign inflation are likely to keep rural real wages positive, while urban wages are also improving. Ind-Ra noted that services account for over half of consumption and will remain a key driver.
The agency said retail inflation is forecast at 3.8% in FY27, within the RBI’s target band, with limited scope for further rate cuts beyond 25 basis points. The fiscal deficit is estimated at 4.1% of GDP, with the debt-to-GDP ratio declining to 55.5%. The current account deficit is expected to widen marginally to 1.5% of GDP, while the rupee may average 92.26 per dollar, with the RBI intervening mainly to curb volatility.
Pant on Artificial Intelligence
Another emerging headwind is artificial intelligence, Pant said. The agency believes risks to FY27 growth are evenly balanced, with a faster Indo-US trade deal or favourable weather potentially lifting growth, while a weaker-than-expected revival in consumption and investment could drag it down.
Gross Fixed Capital Formation (GFCF) is projected to grow 7.8% in FY27, driven largely by sustained public capital expenditure at the Centre and state levels. While some sectors such as telecom, chemicals and garments may see slower investment, power, renewables, logistics, warehousing and real estate in commercial and retail segments are expected to maintain momentum. India continues to attract global capability centres and electronics investments, including large-scale mobile manufacturing, though Ind-Ra cautioned it is premature to view this as a full replacement for China in global supply chains.
Overall, India Ratings expects India’s reform momentum to provide a buffer against global turbulence, even as growth moderates from recent highs.