S&P Forecasts India's FY27 Growth at 6.6%, Reforms Crucial for Achieving Viksit Bharat Objectives

India's GDP Growth Projected to Moderate Amid External Economic Shocks

India's GDP growth is projected to moderate to 6.6 percent in the current fiscal from the earlier estimated 7.1 percent, according to a joint report by S&P Global and Crisil, titled 'India Forward'. The report highlights the need for energy and food security reforms to achieve the Viksit Bharat goal by 2047.

The report notes that India is facing external economic shocks from energy supply disruptions, rising oil and gas prices, and currency volatility. To mitigate these effects, S&P Global and Crisil recommend that India devise a comprehensive energy storage policy to create strategic buffers.

India is currently facing pressure on growth due to the West Asia crisis, which has led to a weakening rupee and rising oil prices. The situation is further exacerbated by the country's reliance on imported goods and raw materials.

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Crisil Chief Economist Dharmakirti Joshi emphasized the need for India to focus on energy and food security, as well as the fertiliser sector, in the face of the West Asia conflict. Joshi noted that while India is reasonably well placed for summer crops, the winter crop could face fertiliser shortages if the crisis continues.

To take advantage of the recently signed free trade agreements (FTAs), which give market access through lower tariffs, India needs to become more competitive. This requires a variety of reforms to deal with the crisis and make the most of the new trade agreements.

Since the beginning of the war in West Asia on February 28, crude oil prices have risen significantly, stoking inflation fears. Crude prices soared to a four-year high of $126 per barrel on April 30, from about the $73 level before the war. Brent crude prices fell to $97.77 per barrel on May 6.

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The impact of higher crude oil prices on wholesale (WPI) and retail (CPI) price inflation is expected to be significant. Since the pass-through of global crude oil prices has not happened to households, the WPI inflation numbers, which also account for imported items, will come in higher than the CPI. The government has hiked prices of commercial LPG cylinders to shield consumers from the impact of the West Asia crisis, but has not hiked prices of petrol, diesel, and domestic LPG.

Higher global crude prices will show a larger impact on WPI in the form of imported goods and raw materials, and less on CPI as the government has been holding pump prices stable. The April print of inflation data is expected to see the number rising, but WPI will be higher than the CPI in April.

The central bank has projected headline inflation to average 4.6 percent in FY27, and flagged upside risks to inflation forecasts. As per the latest data, consumer price index (CPI) inflation rose to a one-year high of 3.4 percent in March, while wholesale price index (WPI) inflation was at a 38-month high of 3.88 percent.