India is expected to deliver another year of relatively strong economic growth in FY27, even as private investment remains uneven and global risks continue to cloud the outlook, domestic ratings agency India Ratings and Research said on January 6.
Real GDP is projected to grow 6.9 percent in FY27, easing from an estimated 7.4 percent in FY26.
According to the agency, India’s macro fundamentals and recent policy measures should help cushion the economy against global uncertainty, particularly the trade disruptions triggered by tariff actions in the United States.
India Ratings said reforms such as income tax cuts announced in the FY26 Budget, GST rationalisation, and the signing of free trade agreements with Oman, the UK and New Zealand are expected to provide structural support.
However, the agency also flagged emerging risks, including the possibility of an El Niño weather pattern from mid-2026, which could weigh on agricultural output and rural incomes.
From the supply side, gross value added (GVA) is expected to grow 6.8 percent in FY27, driven largely by services and industry. Services are projected to remain the primary growth engine, expanding 8.1 percent, while industry is expected to grow 6.2 percent. Agriculture growth, by contrast, is forecast to moderate to 3.1 percent.
On the demand side, private final consumption expenditure (PFCE), which accounts for nearly 56 percent of GDP, is expected to rise 7.6 percent in FY27, slightly higher than the 7.4 percent estimated for FY26, even as urban consumption continues to lag.
Private investment remains the weak link in the growth story. While infrastructure-linked sectors such as power, transmission and logistics are expected to sustain capital expenditure momentum, the agency cautioned that a broader-based investment revival will take time. Sectors such as textiles are likely to see flatter or slower investment growth.
“It will still take at least a year for capex to get broad-based,” said Devendra Kumar Pant, chief economist at India Ratings.
Inflation dynamics are expected to remain favourable. India Ratings forecasts average CPI inflation of 3.8 percent in FY27, up from an estimated 2.1 percent in FY26 but still comfortably within the Reserve Bank of India’s mid-point of 4 percent.
Food price deflation and GST rationalisation have helped keep inflation low so far, but favourable base effects are expected to fade over the coming year.
In this context, the ratings agency noted that additional rate cuts, if any, will be capped at 25 basis points and entirely dependent on incoming data. The RBI has already cut policy rates by 125 basis points over the past year, bringing the benchmark rate down to 5.25 percent from 6.5 percent at the start of the year.
Externally, the current account deficit is projected to widen modestly to 1.5 percent of GDP in FY27, from 1.3 percent in FY26. The rupee is expected to average around Rs 92.3 per dollar during the year.
Fiscal consolidation to continue
On the fiscal front, consolidation is expected to continue. India Ratings projects the central government fiscal deficit to narrow further to 4.1 percent of GDP in FY27, with the debt-to-GDP ratio easing to 55.5 percent.
The agency was hopeful that 9 percent GDP growth in FY26, along with the huge RBI dividend and some expenditure compression will help the government achieve 4.4 percent fiscal deficit target this fiscal.
The agency expects the size of the Union Budget to be around Rs 52 lakh crore, with net tax revenue growth slowing to about 7 percent, even as the government keeps capital expenditure growth broadly aligned with nominal GDP expansion.
For FY27, India Ratings expects nominal GDP growth to accelerate to 9.7 percent.
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