All eyes are on the Budget now on February 1. In preparation to the key event in our financial calendar, the Ministry of Statistics and Programme Implementation (MoSPI) projected India’s real gross domestic product (GDP) to grow 7.4% in FY26 in its first advance estimates. Responding to the projections, key ratings firm Crisil said it expects India’s economic growth to ease in FY27, with real GDP projected at 6.7%.
Crisil, in its report, highlighted 3 key factors that may result in the GDP growth easing as we move into the next fiscal. Here is a detailed analysis –
3 reasons why GDP growth may ease in FY27
The slowdown in growth is likely to stem from a tougher external environment and reduced policy support. Crisil said weakening global trade conditions could weigh on India’s export momentum in the coming year.
#1 External headwinds and trade outlook amid tariffs
As India is still facing a steep 50% tariff from the US and Mexico, the trade outlook remains challenging, with the World Trade Organisation projecting a sharp slowdown in global trade growth in calendar year 2026 despite steady global GDP expansion. The WTO expects global trade volumes to grow just 0.5%, down from 2.4% in 2025.
#2 Reduced fiscal support
Crisil noted that the fiscal support that fuelled growth in the post-pandemic years is expected to moderate in FY27 given fiscal consolidation and debt reduction targets. This too is expected to exert downward pressure on the
#3 Low base effect unlikely next fiscal
Crisil said the statistical tailwinds that supported growth in FY26 are likely to fade in FY27. The boost from a low base in the first two quarters of FY25 and a subdued GDP deflator will no longer support growth next year.
The agency noted that CPI- and WPI-linked inflation is expected to pick up in FY27, which will narrow the gap between real and nominal GDP growth and reduce the statistical support seen in the current fiscal.
GST rationalisation, rate cuts to cushion growth slowdown: Crisil
Despite these headwinds, several domestic factors are expected to cushion the slowdown. The government’s GST rationalisation, which helped cool inflation and boost consumption, is likely to continue supporting demand.
“The GST rationalisation will boost consumption next fiscal as well. Direct benefit transfers will support consumption, particularly since the recipients of these benefits tend to have a higher marginal propensity to consume,” Crisil noted.
Crisil also said the full transmission of the 125 basis point policy rate cuts in 2025 is yet to play out and should provide a boost to demand and investment in FY27.
In addition, strong balance sheets of banks and corporates, coupled with lower interest rates, are expected to support a gradual pickup in private capital expenditure. Benign crude oil prices are also seen helping by keeping inflation in check and improving household purchasing power.
Key FY27 monitorables: India–US trade deal, southwest monsoon
All eyes will now be on the Budget 2026 but Crisil highlighted that two key factors will need close monitoring in FY27.
- The outcome of a potential India–US trade deal, which could provide relief from tariffs and improve market access for Indian exporters, offering an upside to growth if finalised in time.
- The first is the performance of the southwest monsoon, which will influence agricultural output, rural demand and food inflation.
The GDP data is crucial for the Ministry of Finance as it prepares Budget 2026. The government uses the estimated GDP growth as the base for all budget calculations. It assumes a certain level of nominal GDP growth for the next fiscal year (FY27) and, based on that, determines how much fiscal deficit is feasible and how much tax revenue growth can be expected.