India Ratings and Research (Ind-Ra) has projected India’s GDP growth at a healthy 6.9% year-on-year in FY27, supported by domestic policy reforms that are expected to cushion the economy from global headwinds.
The forecast follows Ind-Ra’s estimate of 7.4% growth for FY26.
According to the rating agency, key reform measures, including income tax cuts announced in the FY26 Budget, GST rationalisation, and recently concluded free trade agreements with Oman, the UK and New Zealand, are likely to act as growth catalysts. These steps are expected to provide resilience against external shocks, including higher US tariffs.
However, Ind-Ra flagged several downside risks. “The main challenges include the mid-2026 El Nino, a weak currency from tepid turbulence, capital flows, sluggish global trade, a strong FY26 growth base effect, and slower net production tax growth due to GST changes. Emerging tech like AI also presents new hurdles,” said Devendra Kumar Pant, chief economist and head of public finance at Ind-Ra.
The agency noted that FY27 growth could exceed its baseline estimate if an early Indo-US trade agreement materialises and the Indian Ocean Dipole offsets the impact of El Nino. On the other hand, a slower-than-expected recovery in demand could weigh on growth. Ind-Ra also said upcoming revisions to the GDP and CPI base years, to 2022-23 and 2024, respectively, will require a reassessment of the macro outlook once updated data becomes available.
On the demand side, private consumption continues to be the primary growth driver. Private Final Consumption Expenditure (PFCE), which accounts for nearly 56% of GDP, grew 7.2% in FY25 after a modest 5.6% rise in FY24 and expanded further by 7.5% in the first half of FY26. While rural demand remains strong, urban consumption has been relatively subdued. Ind-Ra expects PFCE growth to accelerate to 7.6% in FY27, aided by easing inflation, positive real wage growth, tax relief measures and continued momentum in the services sector.
Agricultural output is also expected to lend support, with agricultural GVA growth staying above 3.5% for five consecutive quarters and favourable weather conditions improving prospects. Inflation is projected to remain within the RBI’s tolerance band, helping sustain both rural and urban consumption.
Investment activity is likely to remain resilient. Gross Fixed Capital Formation (GFCF), the second-largest GDP component at 34.4%, is projected to grow 7.8% year-on-year in FY27, driven largely by government-led capital expenditure and housing-related investments. While capital spending in sectors such as telecom and chemicals may moderate, strong momentum is expected to continue in power, logistics and real estate. Ind-Ra also noted rising interest from global technology firms, particularly in electronics and mobile manufacturing, though further policy support is needed to deepen India’s role in global supply chains.
On the global front, Ind-Ra said the impact of US tariff hikes has been less disruptive than initially feared, even as uncertainty persists. The IMF now expects global GDP to grow 3.2% in 2025. That said, higher tariffs on Indian goods, impacting exports worth over $74 billion, remain a concern, with global manufacturing activity showing signs of stress.
For FY27, Ind-Ra expects CPI inflation to average 3.8% and WPI inflation 2.3%, supported by food price deflation and GST rationalisation. With limited room left for further rate cuts, future RBI policy actions will remain data-dependent.
On the fiscal side, the agency projects an improvement in the government’s debt metrics, with the fiscal deficit estimated at 4.1% of GDP in FY27. Net market borrowings are expected to decline, while the current account deficit may widen marginally amid trade volatility. The rupee is projected to average 92.26 per US dollar in FY27, with the RBI likely to continue managing volatility through forex market interventions.
