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American rating agency Fitch Ratings has reduced India’s GDP growth forecast for the current financial year (FY27) from 6.7% to 6.4%. Fitch says that due to the US-Iran war, the pace of the Indian economy will slow down in the September and December quarters.
Economy will slow down due to 3 big reasons
1. Impact of America-Iran war and oil crisis
Fitch Ratings has said in its June Global Economic Outlook report that the impact of the oil crisis caused by the US-Iran war will be clearly visible on the global and Indian economy.
According to the rating agency, the economic slowdown will be most visible in the second (September) and third (December) quarters of the financial year 2026-27.
2. Decrease in income and weak consumer spending
Rising prices due to war are affecting people’s real income. This will reduce consumer spending i.e. expenses incurred by common consumers. However, capital expenditure within the country remains strong.
3. Closing of the Strait of Hormuz and rising crude prices
The ‘Strait of Hormuz’ has been closed for the last 14 weeks. Fitch has estimated that it will not open before July. Due to this oil crisis, Fitch has increased the average price of Brent crude oil for the year 2026 from $ 70 per barrel to $ 87 per barrel. Fuel prices have increased by 4-5% in recent weeks alone.
Domestic demand will be the main source of growth
Fitch said we expect GDP growth to slow to 6.4% in fiscal year 2026-27, which is 0.3% lower than our March estimate. However, domestic demand will remain the main driver of this growth.
Along with this, due to less imports in real terms, net external demand will have a positive contribution to growth.
Inflation may reach 5.3% by the end of the year
In India, retail inflation based on Consumer Price Index (CPI) has been 3.5% and wholesale inflation (WPI) has been 8.3% on an annual basis in April. Although retail inflation has not increased much yet, the pressure is continuously increasing.
Fitch estimates that due to base effect and expensive energy, inflation rate may increase to 5.3% by the end of this calendar year. Apart from this, the ongoing heatwave in some parts of the country and the forecast of below average monsoon has also increased the risk of inflation.
RBI may increase interest rates to 5.5%
- In view of the increasing inflationary pressure, Fitch believes that the Reserve Bank of India (RBI) may change its policy. However, in the April meeting, RBI had kept the repo rate constant at 5.25%.
- But according to Fitch, to deal with the price pressure arising from supply shock, RBI may increase the interest rates once this year to 5.5%.
- Let us tell you that last week itself RBI had also reduced the country’s growth estimate to 6.6% and had estimated the inflation rate to be 5.1%.
No major decline in rupee against dollar
Regarding the currency market, Fitch has said something of relief for the Indian market. According to Fitch, there is no possibility of any major devaluation (fall) in the Indian rupee in the remaining months of this year.
In the current financial year, the exchange rate of rupee against the dollar is expected to remain at an average level of 97.50.
Global growth forecast also reduced
The oil crisis is not only affecting India but the entire world. Fitch has also reduced the global growth rate forecast for the year 2026 by 0.2% to 2.4%.
Fitch’s Chief Economist Brian Coulton said that the oil price shock is causing damage to the global economy, but the impact of this shock has been reduced a bit due to the huge spending on the IT sector around the world, especially in Asia.
Not as bad a crisis as the 1970s
Fitch believes the current oil crisis is not as serious as the deadly oil crises of the 1970s. In the year 1979, the real prices of crude oil had reached $ 170 per barrel and at that time the role of OPEC countries was also quite different. Compared to 1980, today the share of total oil consumption in global GDP has reduced to half.
There will be a rise in the financial year 2027-28
Fitch expects that the Indian economy will once again gain momentum in the upcoming financial year 2027-28. Consumer spending and investment will improve as the impact of the energy crisis reduces, due to which GDP growth can improve to 6.7% in this entire financial year. However, after this, it will again come down to its trend growth rate of 6.4% in the financial year 2028-29.
What is rating agency?
Rating agencies such as Fitch, Moody’s and S&P assess the economic condition, debt repayment capacity and policies of countries and companies globally.
It is on the basis of GDP estimates and credit ratings issued by them that big investors from all over the world decide to invest in a country. A decrease in the rating or estimation of a country can affect the pace of foreign investment there.
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