India's GDP Growth Forecast Cut Amid Oil Price Shock

A Reuters poll of economists has cut India's GDP growth forecast due to the spike in oil prices and weak private investments. The predicted growth rate for the fiscal year ending March 2027 is now at 6.6%, a full percentage-point drop from the previous fiscal year's 7.7%. This change comes as the Indian economy relies heavily on government spending while private investment has been sluggish due to the price shock from higher crude prices.

The Middle East crisis and El Niño weather phenomenon have contributed to the downgrade, with Upasana Chachra, chief India economist at Morgan Stanley, warning that weaker global growth could deter Indian firms from capacity and investment expansions. Chachra stated, 'Even where policy support is in place, firms may defer large capex decisions if demand visibility weakens.'

The International Monetary Fund (IMF) had previously cut its GDP growth forecast for India by 10 basis points to 6.4% in April due to higher energy prices. The IMF's resident representative for India and Bhutan, Ranil Salgado, identified two main risks: the re-escalation of the Middle East war affecting oil prices and a poor monsoon season caused by El Niño.