Why India's GDP growth forecast has been downgraded to 6.8-6.9%
What's the story
ICICI Bank has revised its GDP growth forecast for India, projecting a range of 6.8-6.9% for the fiscal year 2027. The revision comes from an earlier estimate of 7.2%, owing to major disruptions in energy supply and manufacturing momentum due to the ongoing conflict. The report said that global oil prices and supply chain blockades are starting to impact domestic production, altering the economic outlook significantly.
Oil price impact
Prior to conflict, domestic growth outlook was more optimistic
The revised GDP growth forecast is based on the assumption that oil prices will stabilize at around $85 per barrel as supply lines improve. The report noted that prior to the conflict, the domestic growth outlook was much more optimistic. Data from the new GDP series showed a year-on-year growth of 7.8% in Q3 of FY26, with financial year-to-date growth revised to 7.6%.
Supply chain effect
Geopolitical tensions disrupt energy supply, impact manufacturing
Geopolitical tensions have severely disrupted the supply of energy products, especially liquefied natural gas and liquefied petroleum gas. The impact is already visible in industrial data. The manufacturing PMI for March showed an immediate effect, with the index slowing down to 53.9 from 56.9 in the previous month. The report noted that even when energy and gas prices increased in 2022, India's manufacturing sector activity slowed down to -1.7% in FY23 from 10% in FY22 due to supply constraints.
Economic challenges
External trade facing challenges due to geopolitical tensions
The ICICI Bank report further stated that lower output will affect corporate sector margins, similar to what was seen in FY23 due to the Russia-Ukraine conflict. This will also impact gross value added (GVA) growth. External trade is also facing challenges as the blockade of the Strait of Hormuz has affected exports to GCC countries, which account for 15% of total exports.