By Vivek Mishra and Anant Chandak
BENGALURU, July 28 (Reuters) - India's economic growth is expected to slow sharply this fiscal year from last year's robust expansion and recover only modestly the following year, a Reuters poll of economists found, as weak private investment and higher oil prices triggered by the Iran war weigh on domestic demand.
Gross domestic product is forecast to grow 6.6% in the fiscal year ending March 2027, according to the median estimate in a Reuters poll, down from 7.7%
in FY2025/26. Growth is then expected to edge up to 6.8% in FY2027/28.
The poll, conducted between July 21 to 27, surveyed 42 economists.
Asia's third-largest economy continues to rely heavily on government spending, and many economists remain concerned the official figures overstate the actual strength of the economy. India is not alone. Reuters polls of several Asian economies also found that higher oil prices and weak domestic demand are weighing on the outlook for China, Thailand, Indonesia and the Philippines.
"We believe the headline print likely overstates the true pace of underlying activity," said Kunal Kundu, India economist at Societe Generale.
Kundu added that while investment and inventory accumulation supported growth, "measurement distortions...have likely flattered the real growth outcome, leaving the headline print stronger than the underlying macro reality."
Official data showed private investment expanded 10.8% in the January-March quarter, its fastest pace under the revised GDP series, but questions linger over whether it can mount a sustained recovery even with strong corporate balance sheets.
Companies remain reluctant to commit to large capital expenditure plans because of uncertainty over the durability of domestic demand, economists say. This limits job creation for the millions entering India's labour force each year.
"A weaker global growth backdrop, slower trade expansion, or softer domestic consumption and investment demand could...weaken the incentive for firms to undertake fresh capacity expansion. Export-oriented sectors could also be particularly exposed," said Upasana Chachra, chief India economist at Morgan Stanley.
"Even where policy support is in place, firms may defer large capex decisions if demand visibility weakens."
The U.S.-Israeli war on Iran has driven up global crude prices, threatening higher inflation and weaker growth. India imports about 90% of its crude oil, leaving it vulnerable to prolonged increases in energy costs.
Higher oil prices have boosted fuel and transport costs, complicating the Reserve Bank of India's task of balancing slowing growth against renewed inflation pressures.
The RBI is expected to keep interest rates unchanged at its August policy meeting as policymakers assess the inflationary impact of higher energy prices.
"We do not see risks of the central bank sounding dovish in August," analysts at BofA said.
"We see a hold and messaging to emphasise risks on inflation management over the medium term, while waiting for clarity on growth in the near term."
(Other stories from the Reuters global economic poll)
(Reporting by Vivek Mishra and Anant Chandak; Polling by Renusri K and Susobhan Sarkar; Editing by Hari Kishan, Ross Finley and Jacqueline Wong)
