ICRA sees Q1FY27 GDP growth at 7% as West Asia crisis hits oil refiners

India’s real GDP growth is likely to slow to a four-quarter low of 7% in the first quarter of FY27, from 7.8% in Q4 FY26, with losses at oil refining companies amid the West Asia conflict weighing on growth, rating agency ICRA said. The estimate is broadly in line with the Reserve Bank of India’s Monetary Policy Committee forecast for the quarter.

“High frequency indicators across the industrial and services sectors have revealed a healthy picture of domestic volume growth in Q1 2026-27, belying the concerns of a fallout of higher commodity prices in the quarter on account of the West Asia conflict. However, oil refining companies experienced sizeable losses in Q1 2026-27, which would impact the GVA growth.

On balance, ICRA projects the real GDP expansion to have eased to 7.0% in Q1 2026-27 from 7.8% in Q4 2025-26, in line with the Monetary Policy Committee’s growth forecast for the quarter,” said Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA.

Services sector slowdown drives Q1 growth moderation

The slowdown is expected to be led by services, with GVA growth projected at around 7.9% in Q1 FY27, down from 9.9% in Q4 FY26. Growth across all services sub-sectors is expected to moderate, while 18 of 19 services production indices recorded slower YoY growth during the first two months of FY27. Business sentiment among services companies also weakened to its lowest optimism level in five years.

The YoY performance of most transport and mobility indicators also moderated during the quarter, including petrol, diesel and aviation turbine fuel consumption, rail freight traffic, GST e-way bill generation and commercial vehicle sales. Service export growth improved, while residential area sold across the top seven cities expanded at a slightly slower pace.

Industrial, manufacturing activity shows mixed trends

Industrial GVA growth is estimated to improve to 7.7% in Q1 FY27 from 7.3% in Q4 FY26, with growth led by all sub-sectors except manufacturing. Electricity generation accelerated to a nine-quarter high of 9.3%, from 2.7%, while mining remained in contraction, although the pace of decline eased to 1.4% from 1.8%. Construction-related high-frequency indicators remained broadly positive.

Manufacturing volume growth accelerated to 6.3% from 4.7%, its fastest pace in six quarters. However, profits of a sample of 978 manufacturing companies contracted in Q1 FY27 as the West Asia crisis pushed up raw material costs and resulted in losses for oil refiners. Consequently, manufacturing GVA growth is estimated to moderate to around 6% from 7.3%, its lowest growth since Q2 FY25.

Agriculture, forestry and fishing GVA growth is projected to rise to 4% from 3.6%, supported by higher rabi output of coarse cereals, oilseeds, pulses and rice. Rabi output rose 25%, 9.4%, 11.1% and 12.3%, respectively, in 2025-26.

Government non-interest revenue expenditure rose 19.5% to ₹6.7 trillion in Q1 FY27, while the combined spending of 24 state governments increased 2.5% to ₹8.7 trillion.

ICRA sees FY27 GDP growth at 6.7%

For FY27, ICRA expects real GDP growth to moderate to 6.7% from 7.7% in FY26, assuming an average crude oil price of $80-85 a barrel. Risks remain tilted to the downside amid continued West Asia tensions and monsoon-related uncertainty.

“Based on the assumption of an average crude oil price of ~$80-85/barrel in 2026-27, ICRA expects the real GDP growth to moderate to 6.7% in the fiscal from 7.7% in 2025-26, with risks tilted to the downside amid continued tensions in West Asia and monsoon-related uncertainty. However, the nominal GDP expansion is projected to accelerate to a four-year high of ~13% in 2026-27 from 8.9% in 2025-26, amid expectations of a hardening in the inflation prints,” Nayar added.