India Growth Seen Slowing To 6.7% In FY27 Amid Oil Price Shock

India’s economic growth is expected to moderate in FY27 as rising oil prices linked to the Iran conflict and fading impact of earlier tax reforms begin affecting consumption and investment activity, BMI said in a report released on May 12.

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BMI retained its FY27 GDP growth forecast at 6.7%, while revising FY26 growth estimates slightly higher to 7.7% from 7.6%. The report said the effects of GST and income tax reforms introduced in 2025 had supported economic activity in FY26, but the benefit is expected to weaken in the current fiscal year.

The report estimated India’s economy expanded 8% year-on-year during the January-March quarter of FY26, slightly above BMI’s earlier estimate of 7.8%.

Oil Prices And Inflation Risks

BMI said India remains among the most oil-sensitive economies in Asia, with higher crude prices posing a major risk to growth. Brent crude prices crossed $105 per barrel on May 12 after the U.S. rejected Iran’s peace proposal, raising concerns over continued disruptions in the Strait of Hormuz.

Crude oil prices were around $73 per barrel before the conflict began on February 28 and touched a four-year high of $126 per barrel on April 30.

According to BMI, its models show India’s GDP growth could decline by 0.4%-0.7% if Brent crude prices rise to around $90 per barrel on a sustained basis.

The report also said restricted supply of energy and food items may increase inflationary pressure during FY27, affecting consumption demand.

Signs Of Slower Domestic Momentum

BMI noted that several high-frequency indicators have started showing signs of moderation in economic activity.

Vehicle registrations grew 9% year-on-year in April, compared to 23% growth recorded during the January-March period, according to the report.

Electricity generation increased 2.7% year-on-year in the March quarter, but March electricity consumption growth slowed to 0.9%.

BMI said these indicators suggest that momentum inherited from FY26 may weaken further during the current fiscal year.

Monsoon Outlook Adds To Concerns

The report also flagged weather-related risks. India Meteorological Department has forecast below-normal rainfall during the June-September monsoon season because of El Nino conditions.

BMI cited International Monetary Fund estimates showing a typical El Nino event can reduce India’s GDP growth by 0.1%.

The report added that rising uncertainty linked to the Iran conflict and higher input costs could impact investment activity despite expectations of looser monetary policy supporting capital expenditure.

BMI also said the government may face pressure in balancing spending on fuel price management and defence requirements while continuing with fiscal consolidation targets during FY27.