Fitch Ratings has lowered its GDP growth projections for India amid the US-Israeli war against Iran. The credit rating agency estimates that the ongoing conflict will slow the economy in the September and December quarters. Fitch also projected 6.4% growth in the current fiscal — down from an earlier estimate of 6.7% in its June Global Economic Outlook.

“We expect GDP growth to ease to 6.4% in FY27, a downward revision of 0.3pp from March. Domestic demand will be the main driver of growth, but lower imports in real terms imply positive contributions to growth from net external demand,” Fitch Ratings wrote.

The estimates came even as the Reserve Bank of India cut its growth forecast for the current fiscal to 6.6% and upped its inflation projection to 5.1%. Fitch has also lowered its 2026 global growth forecast to 2.4% as an extended oil crisis hurts prospects.

Fitch cuts FY27 growth projection for India

The ratings agency predicts a slowdown in economic growth in FY27 — from the 7.4% clocked in FY26 — as rising prices erode real incomes and dampen consumer spending, amid a resilient capital expenditure. It said the slowdown would be most apparent in the second and third quarters of FY27.

Fitch expects GDP growth to pick up in FY28 as the energy shock unwinds. Stronger consumer spending and investment will translate to a growth rate of 6.7% for the full financial year before easing towards trend growth of 6.4% in FY29.

‘Inflation to rise steadily’

Fitch said India’s consumer price inflation has not yet risen significantly, but price pressures are mounting. Wholesale prices rose by 8.3% year on year in April, and CPI inflation has increased to 3.5%.

“We expect inflation to rise steadily over the months ahead, reaching 5.3% by the end of the (calendar) year. This reflects a combination of base effects and higher energy prices. Forecasts for below-average monsoon rains and the current heatwave in parts of India raise the risk of even stronger price rises,” Fitch added.

Fitch predicts RBI rate hike

The Reserve Bank of India had kept its policy rate at 5.25% in April. But Fitch expects RBI to change course and increase rates once this year to 5.5% to address the rising price pressures from the adverse supply shock. The global rating agency expects the exchange rate to average 97.50 to a dollar in current fiscal.

“We do not expect a further, significant depreciation in the Indian rupee over the rest of the year,” Fitch said.