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Informist, Thursday, Mar. 19, 2026

NEW DELHI – Kotak Mahindra Bank Thursday lowered its forecast for India's GDP growth in 2026-27 (Apr-Mar) by 50 basis points to 6.5%, mainly due to the ongoing conflict in West Asia causing temporary energy supply constraints. The bank also indicated further risks to its growth forecast "should the West Asia crisis intensify."

 

Growth is likely to face headwinds in FY27 due to uneven consumption patterns in the country, a widening trade deficit, and uncertainty in private capital expenditure, economists at the bank said in a report. Limited fiscal space to offset adverse shocks without slippages may further dent the GDP growth of the country in the next fiscal, it said. India's economy expanded 7.8% in the December quarter and the government's second advance estimate projects GDP growth in the current financial year ending Mar. 31 at 7.6%.

 

The escalation in geopolitical tensions in West Asia, which started on Feb. 28, has led to a surge in Brent crude oil prices. "If the crisis intensifies, fiscal slippage risks could rise to 20-30 bps, especially if the Centre aims to maintain retail fuel prices," the bank said, adding that oil marketing companies will be the first to absorb the shock due to higher crude prices.

 

The bank has estimated India's capital account deficit to be 2.2% of GDP and balance of payments deficit at $70 billion in FY27 if the average crude oil price is $85 per barrel. At 2020 IST, Brent crude oil futures for May delivery traded around $112 per barrel.

 

A rise in current account deficit can be mitigated to some extent by the Reserve Bank of India's intervention strategies, the bank said. It estimates the current deficit to be 1% of GDP in FY26. The current account deficit was $13.2 billion or 1.3% of GDP in the December quarter.

 

The bank sees the rupee in a range of 92–96 against the dollar and averaging 93.75 a dollar in FY27. In case of a prolonged West Asia conflict, India's capital account deficit would widen to 2.5% of GDP, with the balance of payments deficit nearing $80 billion, the bank said, adding that the rupee could average around 95 a dollar in this scenario. The rupee Wednesday fell to a record low of 92.6450 a dollar.

 

While the government has fiscal buffers to absorb part of the external shock, inflation risks are also rising and compounded by potential weather-related disruptions, the bank said. "This raises the risk of a more hawkish RBI even as domestic growth prospects may appear weaker than earlier expectations," the bank said.

 

A 10% rise in crude prices could increase CPI inflation in India by 30 bps, assuming full pass-through to fuel prices. Kotak Mahindra Bank raised its inflation projection for the next year to 4.7% from 4.1?rlier, factoring in higher cooking gas prices and imported inflation. CPI inflation rose to 3.21% in February.

 

Risk of El Nino conditions during the monsoon season will increase risks to food inflation, the bank said. The RBI could tighten liquidity in the second half of FY27 with the possibility of rate hikes increasing if inflation risks deepen, the report said.  End

 

Reported by Shweta

Edited by Ashish Shirke

 

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