ICRA Cuts FY27 GDP Growth Forecast To 6.2%

New Delhi, May 19 (KNN) Investment Information and Credit Rating Agency (ICRA) has projected India’s year-on-year GDP growth to ease to a three-quarter low of 7.0 percent in Q4 FY26, down from 7.8 percent in Q3 FY26, amid slower expansion in the industrial and services sectors and disruptions linked to the ongoing West Asia conflict.
 
GDP Growth Forecast Revised Downward 
 
The rating agency also projected India’s GDP growth for FY26 at 7.5 percent, slightly below the 7.6 percent estimate released by the National Statistical Office (NSO). 
 
It further lowered its baseline FY27 growth forecast to 6.2 percent from 6.5 percent, citing elevated crude oil prices and prolonged geopolitical uncertainty. 
 
According to Aditi Nayar, Chief Economist and Head-Research & Outreach, ICRA, services, mining and electricity indicators improved in Q4 FY26, but industrial growth was affected by slower manufacturing output, weak exports and margin pressures linked to the West Asia crisis.
 
She said ICRA expects GDP growth to ease to a three-quarter low of 7.0 percent in Q4 FY26, below the National Statistical Office’s implicit estimate of 7.3 percent, though growth remains robust.
 
“Consequently, we have pared our baseline forecast for the FY2027 GDP growth to 6.2 percent from the 6.5 percent expected earlier,” Nayar added.
 
Industrial Growth And Exports Slow 
 
ICRA estimated industrial gross value added (GVA) growth to decline to 7.3 percent in Q4 FY26 from 9.7 percent in Q3 FY26, primarily due to moderation in manufacturing activity.
 
As per Index of Industrial Production (IIP) data, manufacturing output growth slowed to 5.1 percent in Q4 FY26 from 6.3 percent in the previous quarter, while corporate earnings reflected weaker operating profit growth amid rising raw material costs. 
 
India’s merchandise exports also contracted 2.8 percent year-on-year in Q4 FY26 after modest growth in Q3, with ICRA attributing the decline to weak global demand and shipping disruptions linked to the West Asia crisis. Exports of textiles, pharmaceuticals and gems and jewellery were among the worst affected.
 
ICRA estimated manufacturing GVA growth at 8–9 percent in Q4 FY26, down from 13.3 percent in Q3, marking a return to single-digit expansion after five quarters. 
 
Mining output growth improved to 4.3 percent, while electricity generation recovered to 2.7 percent after contracting in the previous quarter. Construction-related activity remained strong, though rising commodity prices and competition pressured margins.
 
Services, Banking Sector Face Pressure 
 
The agency also projected services sector GVA growth to moderate to 8.5 percent from 9.5 percent in Q3. Trade and transport indicators, including port cargo, air passenger traffic, freight movement and GST e-way bill generation, slowed during the quarter amid disruptions caused by the West Asia conflict.
 
Within the financial sector, growth in outstanding deposits and non-food bank credit improved by end-March 2026. However, banks came under profitability pressure due to mark-to-market losses after bond yields rose sharply, with the 10-year government security yield climbing to 7.04 percent from 6.59 percent at end-December 2025.
 
On the fiscal front, the Government of India’s non-interest revenue expenditure contracted by 5.6 percent during January-February FY26, while expenditure by 26 state governments increased 18.2 percent during the same period.
 
Higher Oil Prices Add To Risks 
 
ICRA estimated agriculture, forestry and fishing GVA growth at around 2.1 percent in Q4 FY26 compared to 1.4 percent in Q3 FY26. However, it cautioned that unseasonal rains, hailstorms and intermittent heatwaves may have adversely impacted crop yields beyond what was captured in official estimates.
 
The agency also revised its crude oil assumption for FY27 upward to around USD 95 per barrel from the earlier estimate of USD 85 per barrel due to continued firmness in global oil prices amid the prolonged West Asia conflict.
 
(KNN Bureau)