India’s FY27 GDP Growth Seen At 6.4% As Fitch Cites Rising Energy Costs From U.S.-Iran War

Fitch Ratings has lowered India’s GDP growth forecast for FY27 to 6.4% from 6.7%, citing the economic impact of the ongoing U.S.-Iran conflict and higher energy prices that are expected to weigh on consumer demand.
In its June edition of the Global Economic Outlook, the global rating agency said India’s economy is expected to slow from the 7.4% growth recorded in FY26 as inflationary pressures reduce household purchasing power, despite continued strength in capital expenditure.

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Higher Energy Costs Seen Impacting Demand

Fitch said domestic demand will remain the primary driver of growth in FY27, while lower imports in real terms are expected to support growth through positive net external demand. “We expect GDP growth to ease to 6.4% in FY27, a downward revision of 0.3 percentage points from March,” the agency said.

According to Fitch, the slowdown is likely to be more visible during the second and third quarters of FY27, when higher fuel and energy costs linked to the U.S.-Iran conflict could curb consumer spending. Fuel prices have increased by around 4-5% in recent weeks.

The revised forecast comes shortly after the Reserve Bank of India (RBI) reduced its FY27 GDP growth projection to 6.6% and raised its inflation estimate to 5.1%.

Growth Expected To Recover In FY28

Looking beyond the current fiscal year, Fitch expects India’s economic growth to rebound to 6.7% in FY28 as pressure on energy markets eases and consumer spending and investment activity strengthen.
The agency projects growth to moderate again to 6.4% in FY29, bringing it closer to its long-term trend.

Global Growth Forecast Also Lowered

Fitch also cut its global economic growth forecast for 2026 by 0.2 percentage points to 2.4%, attributing the downgrade to the oil price shock caused by the U.S.-Iran conflict.

“The oil price shock is hitting world growth prospects and increasing downside risks,” Brian Coulton, Chief Economist at Fitch Ratings, said.

However, Fitch noted that strong global spending on information technology is helping offset some of the negative impact, particularly across Asian economies.

The agency said the closure of the Strait of Hormuz has extended to 14 weeks and is not expected to begin reopening before July.

As a result, Fitch raised its average Brent crude oil price assumption for 2026 to $87 per barrel from the $70 per barrel projected in March.

Inflation Risks And Policy Outlook

Fitch said inflationary pressures are rising in India, with wholesale inflation at 8.3% in April and consumer inflation at 3.5%. The agency expects inflation to climb to 5.3% by the end of the year, driven by higher energy prices and base effects. It also flagged below-average monsoon forecasts and heatwave conditions as risks to food supplies.

Fitch said the RBI may need to tighten monetary policy if inflation accelerates further. While the policy rate was kept unchanged at 5.25% in April, the agency expects one rate hike later this year, taking the benchmark rate to 5.5%. Despite higher oil prices and global uncertainty, Fitch does not expect significant depreciation in the rupee and projects the rupee-dollar exchange rate to average 97.50 in FY27.