The central bank now expects GDP growth of 6.6% in the first quarter, 6.3% in the second quarter, 6.5% in the third quarter and 6.8% in the fourth quarter of FY27.
Announcing the Monetary Policy Committee’s decision, RBI Governor Sanjay Malhotra said the Indian economy had so far remained resilient despite the conflict, supported by strong private consumption, fixed investment, manufacturing activity and services exports.
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The six-member MPC voted to keep the policy repo rate unchanged and retained its neutral stance, saying it would continue to remain data-dependent and closely monitor supply-side pressures and inflation expectations.
Malhotra also flagged weather-related risks, including a subnormal southwest monsoon and El Nino conditions, as key monitorables for the outlook, even as it noted that adequate food stocks and reservoir levels provide some buffer against supply shocks.
“The outlook also remains clouded due to the sub normal southwest monsoon forecast and El Nino risks,” Malhotra said.Weather is a key driver of India’s economy, with monsoon performance directly shaping farm output, rural demand and food inflation, making it a critical macroeconomic risk factor.
Oil shock emerges as biggest risk
The RBI’s assessment echoes concerns raised by economists who have identified crude oil as the single biggest threat to India’s growth trajectory.
India imports more than 85% of its crude oil requirements, making the economy particularly vulnerable to a sustained increase in energy prices.
Earlier this year, ICRA cut its FY27 GDP growth forecast to 6.5% from 7.1% and raised its inflation projection to 4.5%, assuming average crude oil prices of $85 per barrel.
However, the rating agency warned that a longer conflict pushing average crude prices to $105 per barrel could drag India’s growth rate below 6% while driving inflation above 5%.
“These estimates are subject to sizeable risks,” ICRA said, adding that a prolonged conflict could significantly worsen both growth and inflation outcomes.
Among the most bearish forecasts, HSBC recently cut its FY27 GDP growth estimate to 6% from 7.4%, citing the combined impact of higher oil prices and weather-related disruptions.
“Bringing together both the shocks, and factoring in some fiscal slippage, we forecast GDP to grow 6% in FY27, lower than our previous year’s forecast of 7.4%,” HSBC said in a report.
The brokerage warned that the twin shocks would weigh on formal-sector activity, rural incomes and smaller businesses while simultaneously stoking inflationary pressures.
HSBC expects inflation to average 5.6% in FY27 and sees at least two quarters where headline inflation could breach the RBI’s upper tolerance band of 6%.
Growth versus inflation dilemma
The latest GDP projections highlight the increasingly difficult balancing act facing policymakers.
While slowing growth would typically argue for a supportive monetary policy stance, rising energy prices and supply-side pressures are increasing the risk of higher inflation.
Economists broadly expect the RBI to prioritise inflation management if crude prices remain elevated for an extended period.
HSBC expects the central bank to raise interest rates twice during FY27, while several other economists have also turned more cautious on the policy outlook.
External balances under pressure
Apart from inflation and growth, economists are also concerned about the impact of higher oil prices on India’s external accounts.
ICRA expects the current account deficit to widen to a four-year high of 1.7% of GDP under its baseline scenario, a sharp contrast to the surplus recorded during the pandemic period.
The rating agency also warned that government efforts to shield consumers from rising global energy prices may eventually become difficult to sustain, potentially forcing fuel-price adjustments that could feed into inflation.
Higher global uncertainty has already pushed government bond yields higher and increased concerns around fiscal slippage, adding another layer of risk to the economic outlook.