West Asia tension clouds India’s FY27 GDP forecast of 7-7.4 pc, says Finance Ministry

Inflation, trade and demand risks cloud FY27 economic outlook. Representational Image

India's GDP growth forecast of 7-7.4 per cent for FY2026-27 is facing uncertainty due to the evolving macroeconomic outlook amid the ongoing West Asia conflict, according to the Finance Ministry's monthly economic review.

The ministry said India enters FY2026-27 at a point where strong domestic fundamentals are being tested by external challenges. It noted that the economy grew by 7.6 per cent in the previous fiscal year, one of the strongest performances in recent years.

It stated, "The outgoing fiscal year delivered real GDP growth of 7.6 per cent, the strongest in recent years, encouraging a 7-7.4 per cent forecast for the upcoming financial year, only to be clouded by an altered macro-outlook in the wake of the West Asia war".

However, the report highlighted that the West Asia war has introduced a "supply shock" into the economy, raising concerns about inflation, trade and financial flows. It added that demand compression is emerging as a key risk due to high prices, rising inflation and a slowdown in economic activity.

The ministry said inflation could turn into cost-push inflation as businesses and producers pass on higher input costs to consumers to protect their margins.

It noted that a wide range of downstream industries depend heavily on the petroleum sector, and rising energy prices are likely to increase input costs across the economy.

At the same time, the report pointed out that India retains some resilience through strong domestic demand, policy support, a stable financial system and sustained public investment. However, it cautioned that these buffers may be tested if uncertainty over energy and fertiliser supplies continues for a prolonged period.

The ministry also flagged weather-related risks, noting that the El Nino Southern Oscillation (ENSO) could result in a below-normal Southwest monsoon. Most rainfall districts are expected to receive below-normal rainfall, which could further increase inflationary pressures and impact agricultural output.

As a result, risks are tilted towards higher inflation, wider fiscal and external deficits, and slower economic growth.

Meanwhile, the International Monetary Fund (IMF) in its latest outlook has projected India's real GDP growth at 6.5 per cent for FY2026-27, marking a 0.1 percentage point upgrade from its January 2026 estimates. The IMF cited strong carryover momentum from FY26, a reduction in US tariffs on Indian goods from 50 per cent to 10 per cent, and continued domestic demand strength as key supporting factors.

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