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Informist, Monday, Sept. 7, 2026

 

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--Bk of Baroda: India econ to see second round of effect of West Asia war 
--Bk of Baroda: See upside risk to FY27 inflation on higher food prices 
--Bk of Baroda: See 9-10% growth in services sector in FY27 
--Bk of Baroda: Expect exports to grow 6-8% this fiscal 
--Bk of Baroda: See imports rising 10-12% FY27 on high oil prices 
--Bk of Baroda: See $65 bln-$75 bln BoP surplus FY27 on strong bank capital 
--Bk of Baroda: Expect some liquidity mopping measures by RBI 
--Bk of Baroda: India's fiscal deficit to be around INR 17 tln in FY27 
--Bk of Baroda: Fisc deficit to remain under pressure on fertiliser subsidy 
--Bk of Baroda: Fiscal slippage seen between 0.2-0.3% of GDP FY27 
--Bk of Baroda: Fert subsidy bill can increase by 30-40%, around INR 700 bln 
--Bk of Baroda: Loan rates inching up, deposit rates lower on FCNR(B) flows 
--Bk of Baroda: See India FY27 GDP growth at 7.0-7.2% 
--Bk of Baroda: See upside risks to India FY27 GDP growth projection 
--Bk of Baroda: See India CPI inflation averaging 5.0-5.2% in FY27 
--Bk of Baroda: See India WPI inflation 8-9% in FY27 with upside risks 
--Bk of Baroda: Expect India CAD to come around 1.0-1.25% of GDP in FY27 
--Bk of Baroda: See India FY27 fiscal deficit 4.5-4.6% of GDP 
--Bk of Baroda: See RBI raising repo rates by 25-50 bps in FY27 
--Bk of Baroda: Rural demand to be impacted due to weak monsoon, agriculture 
--Bk of Baroda:Impact of high oil prices on GDP to depend on its pass-through 

 

NEW DELHI – The Indian economy is expected to grow 7.0-7.2% in the financial year 2026-27 (Apr-Mar) with risks arising from unfavourable weather conditions and the war in West Asia, according to economists at Bank of Baroda. The lender's growth projection for FY27 is well above the Reserve Bank of India's forecast of 6.7%. India has seen "strong domestic fundamentals, which are driving growth, despite a volatile global situation", the economists said in a webinar on the state of the Indian economy.

 

The economists see the GDP growing on the back of healthy industrial and services sector growth. Among industrial sectors, manufacturing and construction have been seeing healthy growth. "The manufacturing sector is to grow at a stable pace and is expected to range between 7.5-8.5% this year," economists Dipanwita Mazumdar and Sonal Badhan said. "Moderation expected due to base effect, war impact on supply chains, and demand conditions." Sectors such as petroleum-based industries, food, glass and ceramics, textiles, and chemicals are likely to remain under pressure. Machinery, automobile, metals, and infrastructure will perform well, they said.

 

The services sector will remain the key driver of growth, the economists said. The sector is expected to grow 9-10% in FY27, maintaining its momentum on festival-led demand in the September and December quarters. "Within services, growth will continue to be supported by financial, real estate, and professional services, and public administration and defence components," Badhan said. However, the trade, hotels, and transport segments are expected to come under pressure from rising input costs.

 

Last week, the Ministry of Statistics and Programme Implementation released the GDP estimates for the June quarter, which showed that the Indian economy grew 7.8% in Apr-Jun. The growth was mainly supported by healthy growth in the manufacturing and services sectors. The 7.8% growth was sharply above the consensus estimate of 7.2% and the Reserve Bank of India's forecast of 7.0% for the quarter. India's GDP had grown 8.6% in the March quarter of FY26.

 

While the June quarter growth figures were better than expectations, the outlook for the full year was seen fading because of the weak monsoon. The probability of drought in India has increased to 70?ter private weather agency Skymet downgraded its 2026 southwest monsoon forecast to 85% from the earlier 94% of the long period average, according to Mazumdar and Badhan. "National Oceanic and Atmospheric Administration has predicted a strong El Nino in its August 2026 report," they said. 

 

The India Meteorological Department said the country received 642.9 millimetres of rain during Jun. 1–Sept. 7, which was 14?low the normal of 748.3 millimetres for the period. As a result, kharif sowing, which is nearing completion, has fallen 1.5% from last year. Economists have highlighted that the weak monsoon will impact agriculture output and rural demand.

 

The economists at Bank of Baroda also see the Indian economy facing the second-round effects of the war in West Asia as input costs were not fully passed on to customers. They have divided the war into two phases. As an impact of the first phase of the war from March to June, India witnessed a spike in energy prices, including higher prices of fuel and liquified petroleum gas. "Phase 2 of the US-Iran war, which is currently ongoing, began in early July," the economists said. Oil prices, which have risen 32% since July, have again put pressure on domestic fuel prices, with India's natural gas distribution companies raising the price of compressed natural gas.

 

India is among the largest importers of oil and has been greatly affected by the war. Crude oil prices have shot up from sub-$73 per barrel before the war began on Feb. 28 to as high as $122 per barrel at one point. Currently, Brent crude is at $97.39 per barrel. The economists gave their projections considering global crude oil prices. Going forward, the impact of higher crude oil prices on GDP will depend on the prices being passed on to customers, Madan Sabnavis, chief economist at Bank of Baroda, said.

 

Since the onset of the war, India has seen inflation rising, driven by the rise in food and fuel prices. In July, retail inflation rose to a 19-month high of 4.45% from 4.38% in June while the WPI eased to 9.78% from 9.87%. The headline inflation averaged 3.9% and WPI inflation averaged around 9% in the June quarter.

 

Bank of Baroda sees India's retail inflation averaging 5.0-5.2% in FY27 with upside risks from higher food prices. Food inflation is likely to be led by protein-based items, oils and fats, fruit and nuts, and ready-made foods, the economists said. Wholesale inflation is seen averaging 8.9% in FY27.

 

Core inflation, which has been flat at 3.9% for the past two months, is also expected to gain some momentum. The RBI's Monetary Policy Committee had projected core inflation to average 4.3% in FY27. "Core inflation, excluding precious metals, is expected to be lower in the near term, suggesting that demand pressures remain contained," RBI Governor Sanjay Malhotra had said on Aug. 5. The underlying inflation is likely to align with core inflation towards the end of the financial year, he had said.

 

FISCAL OUTLOOK

The economists at Bank of Baroda see India's fiscal deficit at 4.5-4.6% of GDP in FY27, higher than the Budget estimate of 4.3%. They expect the fiscal slippage around 0.2-0.3% of GDP. India's fiscal deficit is estimated to be around INR 17 trillion in FY27. The fiscal deficit will remain under pressure due to the fertiliser subsidy, the economists said. For the full year, the food subsidy is estimated at INR 2.28 trillion and the fertiliser subsidy at INR 1.71 trillion, according to Bank of Baroda. The fertiliser subsidy bill can incease by 30-40%, or around INR 700 billion, Badhan said.

 

In July, the government's fiscal deficit was down 21.5% on year at INR 1.47 trillion owing to higher growth in total receipts compared to total expenditure. The fiscal deficit in July brought the deficit for Apr-Jul to INR 4.55 trillion, down 2.8% on year. The government's fiscal deficit for Apr-Jul was 26.8% of the Budget estimate of INR 16.958 trillion.

 

The economists see India's current account deficit at around 1.0-1.25% of GDP in the full year. "The main support will be from the banking capital side," they said. In the June quarter, India's current account deficit stood at $4.2 billion or 0.5% of GDP, as compared to $3.4 billion or 0.4% of GDP. India's overall balance of payments is likely to remain in a surplus of $65 billion-$75 billion on the back of strong bank capital, they said.

 

The export sector is likely to post better-than-expected performance by growing 6–8% in FY27. "Export growth has rebounded in FYTD27 (Apr-Jul) so far," Badhan said. Oil exports have grown more sharply because of higher crude oil prices. Non-oil exports, which account for 83% of total exports, are also likely to grow because of measures taken by the government to boost manufacturing and exports.

India is expected to import more goods as the economists see imports rising 10-12% on year, mainly because of volatile crude oil prices and robust domestic demand. "Import growth is on the higher side, led by both oil and gold imports," Badhan said. "During Apr-Jul, oil prices were 38% higher and gold prices were 33% higher, on YOY (year-on-year) basis." The non-oil and non-gold imports are expected to be supported by domestic demand. Within this category, electronic goods, minerals, and non-ferrous metals are maintaining momentum despite a high base. Agricultural goods have registered a rebound.

 

The improvement in the capital account and balance of payments comes after measures by the RBI and the government, announced in June, to spur foreign inflows. In June, the central bank announced a host of measures to attract foreign capital, including concessional foreign exchange swap facilities for foreign currency non-resident (banks) deposits and borrowings by public-sector entities. The schemes attracted total foreign exchange inflows of $136.38 billion as of Aug. 31.

 

The economists now expect some liquidity-mopping measures by the central bank. They see lending rates rising and deposit rates moderating due to the FCNR(B) inflows. The banks received $127.23 billion through FCNR(B) deposits from Jun. 8 to Aug. 31 under the RBI's special scheme to attract foreign capital.

 

On the policy side, Bank of Baroda sees the RBI raising repo rates by up to 50 basis points through FY27. "We expect it (repo rate) to be in the range of 5.50%-5.75%," the economists said. The central bank's Monetary Policy Committee, at its last meeting in August, left the repo rate unchanged at 5.25%.  End

 

US$1 = INR 94.48

 

Reported by Radhika Tiwari and Shweta

Edited by Rajeev Pai

 

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