India's economic growth is expected to moderate to 6.6% in the current fiscal year (FY2026/27), according to BMI, a Fitch Solutions company. This marks a visible slowdown from the 7.7% expansion recorded in FY2025/26, which was supported by healthy consumption and robust investment activity, according to government data released last week.
"Looking ahead, we continue to expect 6.6% GDP growth in FY2026/27. Our projection represents a visible slowdown from FY2025-26's 7.7% pace but exceeds India's average 6.1% per annum growth rate over the last decade," BMI stated. The projection aligns with the Reserve Bank of India's (RBI) own 6.6% growth estimate for FY27.
Three Drivers of the Slowdown
BMI attributed the slower growth to three specific factors:
- Waning GST reform impact – The GST reforms implemented in September 2025 triggered a consumption boom in the December quarter of FY26. However, consumption growth subsequently fell by 1.1 percentage points to 7.1% year-on-year in the March quarter of FY26, signaling a diminishing effect.
- High inflation – BMI expects price inflation to hit 5.3% in FY27, with the disruption at the Strait of Hormuz—stemming from the Iran conflict—adding to cost pressures and hindering consumption growth.
- Slowing investment growth – BMI forecasts investment growth to decelerate during the fiscal year, though it notes this is not due to the expected 50 basis points (bps) rate hike by the RBI in FY26/27, as the rate hike's growth impact will be felt primarily in FY27/28.
Trade and Currency Implications
The West Asia crisis and associated trade disruptions pose additional challenges. BMI expects the rupee to trade in the range of 95.1 against the US dollar this calendar year. The rupee's depreciation from its 87 average level in 2025 will support export competitiveness, partially offsetting the drag on GDP from the Iran conflict's terms-of-trade shock.
| Indicator | Value | Source |
|---|---|---|
| GDP growth FY25/26 | 7.7% | Government data |
| GDP growth FY26/27 forecast | 6.6% | BMI, RBI |
| India 10-year average growth | 6.1% | BMI |
| Rupee forecast (CY) | 95.1/USD | BMI |
| Inflation forecast FY27 | 5.3% | BMI |
| RBI rate action | 125 bps cut in 2025; 50 bps hike expected in FY26/27 | BMI |
BMI noted that the currently low level of short-term interest rates following the RBI's 125 bps rate cut during 2025 will support the economy through the ongoing energy crisis.
Implications for Trade and Supply Chains
For international trade executives, the slower growth outlook carries several trade-related signals:
- Export competitiveness: The weaker rupee (95.1/USD vs 87 in 2025) makes Indian exports cheaper in global markets, potentially boosting volumes in sectors such as textiles, pharmaceuticals, and engineering goods.
- Import costs: However, a depreciating currency raises the cost of imported inputs, especially crude oil and refined products, given the Strait of Hormuz disruptions that could raise energy prices.
- Consumption-driven imports: With consumption slowing, demand for imported consumer goods may soften, affecting suppliers in electronics, apparel, and other non-essential categories.
- Investment flows: The expected slowdown in investment growth may reduce capital goods imports, though the RBI's previous rate cuts could still support some infrastructure spending.
- Inflation watch: The projected 5.3% inflation—driven partly by trade route disruptions—will increase input costs for importers and pressure margins unless passed on to consumers.
What to Watch
Monitor the Strait of Hormuz situation for further escalation given its direct impact on India's energy imports and inflation. Also track the RBI's monetary policy decisions: the anticipated 50 bps rate hike in FY26/27 will affect borrowing costs for trade financing and working capital.
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