India's economic growth is expected to moderate in the current financial year as rising energy costs, concerns over rainfall and a slowing global economy create fresh challenges for policymakers and businesses alike.
According to S&P Global Ratings, India's real GDP growth is projected to ease to 6.6 per cent in FY27, down from 7.7 per cent recorded in FY26. The forecast aligns with the Reserve Bank of India's latest growth estimate and comes amid mounting uncertainty linked to the West Asia conflict and weather-related risks.
In its latest report, Economic Outlook Asia-Pacific Q3 2026: AI-Exposed Markets To Outperform, S&P said a combination of energy stress, expectations of a sub-par monsoon and weaker global growth is likely to weigh on economic activity during the current fiscal year, reported PTI.
The Indian economy expanded by 7.7 per cent in FY26 after recording 7.1 per cent growth in FY25. However, the ratings agency believes the environment has become more challenging.
"We project real GDP growth will slow to 6.6 per cent in the fiscal year ending in March 2027, compared with 7.7 per cent in fiscal 2026, amid the energy stress, expectations of a sub-par monsoon, and slowing global growth," S&P said in the report.
A key concern highlighted by S&P is the sharp increase in energy-related costs stemming from tensions in West Asia.
India imports around 88 per cent of its crude oil requirements, making the economy particularly vulnerable to spikes in global oil prices. Higher crude prices not only raise the country's import bill but also feed into inflation and increase production costs across industries.
According to the report, the impact of the ongoing energy stress is already visible, with industries facing higher input costs and longer supplier delivery times.
The ratings agency also noted that higher fertiliser prices are emerging as an additional concern, as they could increase farming costs, affect agricultural output and eventually push up food prices.
Apart from energy costs, weather conditions remain another area of concern.
The impact of El Niño has weakened monsoon rainfall this season, with the rainfall deficit widening to 43 per cent as of June 22.
To mitigate the risks arising from deficient rainfall, the government has prepared state-wise contingency plans that recommend alternative crops suited to lower rainfall conditions.
However, a prolonged shortfall in rainfall could still weigh on rural demand and agricultural output, adding another layer of uncertainty to the growth outlook.
S&P expects inflationary pressures to intensify in the coming months as higher energy costs gradually filter through the economy.
The agency estimates that consumer inflation in India could be 0.5 to 0.6 percentage points higher in the third quarter as manufacturers pass on rising costs to consumers.
Recent increases in petrol, diesel and cooking gas prices are also expected to contribute to price pressures.
According to S&P, consumer inflation is likely to rise to 5.1 per cent during the current fiscal year.
"Rising inflation is eroding purchasing power, thus depressing growth. Sharply higher fertiliser prices may weigh on food production and fuel food prices," the report stated.
With inflation expected to move higher, S&P believes monetary policy could also turn tighter later in the fiscal year.
The ratings agency said it expects a policy rate increase during the second half of FY27 as the central bank responds to inflationary pressures arising from higher energy and commodity prices.
The outlook comes at a time when policymakers are attempting to balance growth concerns with the need to keep inflation under control amid an increasingly uncertain global backdrop.
More broadly, S&P said the Asia-Pacific region is navigating a complex mix of resilient global activity, stress in energy markets and an AI-led technology export boom.
While demand linked to artificial intelligence is expected to support some economies in the region, countries heavily dependent on imported energy could face greater challenges if commodity prices remain elevated.
For India, the combination of energy costs, inflationary pressures and monsoon uncertainty will remain critical factors shaping growth in FY27.
