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Informist, Tuesday, May 19, 2026

 

NEW DELHI – India Ratings and Research has pegged India's GDP growth for the current financial year at 6.7%, slower than 7.6% estimated for FY26, because of the impact of higher crude oil prices and an evolving El Nino climate pattern. While growth is seen slowing, India's current account deficit is projected to widen sharply thanks to a higher import bill, India Ratings said Tuesday.

 

In January, the rating agency had pegged FY27 GDP growth at 6.9%, based on the FY12 series. This is the agency's first forecast for FY27 using the FY23 base year. "The agency believes higher fuel and food prices due to the West Asia conflict's uncertainty and the likely impact of evolving El Nino on agriculture from mid-2026 will pull down GDP growth in FY27," it said in a release.

 

The agency's growth forecast for the current financial year is lower than the Reserve Bank of India's projection of 6.9%. India's GDP grew 7.8% in the December quarter and the government will release the March quarter data on Jun. 5.

 

The current account deficit is seen widening to 2.6% of GDP in FY27 from 1.4% of GDP estimated for FY26. India's current account deficit expanded to $13.2 billion, or 1.3% of GDP, in the quarter ended December from $11.3 billion, or 1.1% of GDP, a year ago.

 

The trade deficit is expected to widen in FY27 to $421.2 billion or 10.4% of GDP, which would be the highest since FY13. The trade deficit is seen higher from $345.2 billion last year because of the "twin impact from rupee depreciation, making imports expensive, and higher projected inflation", the rating agency said.

 

The rupee is likely to depreciate 6.7% in FY27, higher than 4.5% in FY26, India Ratings said. "The goods trade deficit is likely to increase more than the services trade surplus. However, India's four free-trade agreements one each with Oman, the UK, New Zealand, and the European Union, established since July 2025, should enhance access of Indian goods to newer markets and boost exports," it said.

 

The government is likely to meet its budgeted fiscal deficit target of 4.3% of GDP in FY27, India Ratings said. Achieving the fiscal deficit target may be challenging "due to fuel and fertiliser subsidies, reduced excise duties on petrol and diesel to mitigate increased energy prices, and likely monetary support to counter El Nino's impact", the rating agency said. "The fiscal stabilisation fund of INR 1 trillion, created in FY26, will also help in limiting fiscal deficit and borrowing in FY27."

According to Megha Arora, an economist at India Ratings, CPI inflation could rise by 93 basis points if one-third of higher crude oil prices is passed on to consumers. Oil marketing companies Tuesday raised the pump prices of petrol and diesel by around 90 paise. This was the second increase in fuel prices in less than a week after having kept them steady for nearly four years.

 

India Ratings projects CPI inflation and WPI inflation at 4.4% and 5.0%, respectively, in FY27. Retail inflation is still seen within the RBI's tolerance band of 2-6%. CPI inflation rose to a 13-month high of 3.48% in April while WPI inflation hit a 42-month-high of 8.3%.  End

 

US$1 = INR 96.53

 

Reported by Shweta

Edited by Rajeev Pai

 

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