India’s high domestic consumption, demand help economy stay resilient during crises: India Ratings

The growth of the Indian economy is not primarily dependent on exports while the strong domestic consumption and demand have helped the country remain resilient during crises such as the West Asia conflict, El Niño effects, and earlier US tariff shocks, said Devendra Pant, Chief Economist at India Ratings, on Tuesday. 

“Any global event takes place, it is going to have an impact on our economy, but the domestic demand and lesser integration in the global economy are two key points which are helping in India,” Pant told Fortune India.

Ratings agency, India Ratings and Research on Tuesday released its FY27 mid-year economic outlook. The report forecast that India’s Gross Domestic Product (GDP) will grow at a moderate rate of 6.8% as the West Asia crisis impacted inflation, interest rates and production in the Indian economy.

The report also said that the weak currency and the likely impact of El Niño on agriculture are some of the reasons for slowing GDP growth.

Notably, the rating agency lowered its forecast compared with its May 2026 estimate, when it projected GDP growth at 6.7%.

“Higher inflation due to El Niño may limit growth upside from lower oil prices. The FY27 fiscal deficit target of 4.3% remains challenging due to subsidies on liquefied petroleum gas and fertilisers. While direct tax collection and non-tax revenue may support achieving the fiscal deficit target, indirect tax collection may pose challenges,” Pant explained.

India Ratings expects nominal GDP growth to rise to 10.4% in FY27 from 8.9% in FY26, supported by higher inflation. While real GDP growth is expected to moderate during the year, stronger price pressures are likely to push GDP deflator growth to 3.4% year-on-year in FY27, compared with 1.1% in FY26.

For the four quarters of FY27, the agency forecast GDP growth at 6.9% in Q1, 6.6% in Q2, 6.7% in Q3 and 6.9% in Q4. Its estimates are broadly in line with the Reserve Bank of India’s projections of 7.0%, 6.4%, 6.5% and 6.8%, respectively.

The shadow of El- Niño

El Niño has cast its shadow over the 2026 monsoon rainfall. The cumulative rainfall till the end of June 2026 was 39.8% below normal; favourable rains in July and the first week of August have reduced the shortfall.

“However, it is still 11.3% below normal (till 7 August 2026). The monsoon spread has been uneven. The weak monsoon is already affecting food prices and consumer food price inflation. An adverse base effect would continue to push up food inflation at least until October 2026,” the report said.

Achieving fiscal deficit target of 4.3% will be challenging

India Ratings expects the Union government to continue to focus on fiscal consolidation. The government projects a fiscal deficit of 4.3% in FY27 (FY26: 4.4%).

According to the agency, achieving this may be challenging due to expectations of higher fuel and fertilizer subsidies due to the West Asia crisis, reduced excise duty on petrol and diesel to mitigate the impact of increased energy prices on consumers, and likely monetary support to counter the impact of El Niño.

“We expect government intervention in response to the West Asia crisis to involve credit measures, such as credit guarantees, rather than direct spending, thereby easing pressure on the current fiscal position. However, direct cash support to counter the adverse impact of El Niño cannot be fully ruled out,” the report said.