The United Nations has revised downward India's economic growth forecast for 2026 to 6.4% from its earlier projection of 6.6%, citing global uncertainties and economic shocks arising from the ongoing West Asia crisis. According to the report released by the UN Department of Economic and Social Affairs (UN DESA) on Tuesday, the West Asia crisis has delivered yet another shock to the global economy, slowing growth, reigniting inflationary pressures and heightening uncertainty. As per Ingo Pitterle, Senior Economist and Officer-in-charge of Global Economic Monitoring Branch, Economic Analysis and Policy Division, UN DESA, India is "not immune" to current global challenges as it is a large energy importer and exposed to other channels including remittances. The report notes that India remains one of the fastest-growing major economies, with output still expected to expand by 6.4%, though the step-down from 7.5% in 2025 underscores the drag from higher energy import costs and tighter financial conditions. Pitterle emphasized that "It is a large energy importer and it is also exposed to other channels, for example, remittances, add to some vulnerability. Also, a global financial tightening will make monetary policy more complicated."
Leading rating agencies have revised downward India's GDP growth estimates for the next few quarters and up to 2027, thanks to the impact of the war in West Asia on the economy. After global ratings major Moody's and domestic major Crisil's revisions last week, on Tuesday ICRA, the local arm of Moody's, and India Ratings & Research, the domestic arm of global major Fitch, cut India's GDP growth forecasts. Latest developments show ICRA has now lowered India's FY27 GDP growth forecast to 6.2%, down from 6.5%, citing rising crude oil prices and ongoing West Asia conflict. As per ICRA Chief Economist Aditi Nayar, the agency now assumes crude oil prices to average at USD 95/bbl in FY27, against their prior estimate of USD 85/bbl, given the ongoing stickiness in prices amid the stalemate in West Asia. India Ratings & Research has also projected India's GDP growth at 6.7% for FY27, down from 7.6% in FY26 and below RBI's 6.9% projection. The agency believes higher fuel and food prices due to uncertainty over West Asia conflict and the likely impact of evolving El Niño on agriculture from mid-2026 will pull down GDP growth in FY27.
According to India Ratings, a $10/bbl increase in crude oil prices could reduce GDP growth by 44 basis points, while a 10% reduction in capex could lower GDP growth to 6%. The agency's baseline forecast assumes oil at $95/bbl, and if the West Asia conflict resolves quickly and oil prices average less than $95/bbl in FY27, GDP growth could benefit. ICRA estimates GDP growth at 7.5% for FY26, marginally lower than the National Statistical Office's (NSO) Second Advance Estimate (SAE) of 7.6% for the fiscal. UNCTAD has also projected India's GDP growth at 6.5% for 2026, with economic activity supported by domestic demand, continued public investment in infrastructure, and expansion in services and manufacturing sectors. Government initiatives aimed at improving logistics, digital infrastructure and financial services are also contributing to productivity gains. The UN report projects that the country could grow at 6.6% in 2027, with the West Asia crisis having a dual impact on growth - lowering growth while at the same time pushing up inflation, and constraining policy space. Pitterle noted that "We have seen structurally very robust growth in India, which has been driven by consumer demand, by public investment, but also by strong performance in services exports. These main drivers will largely remain intact, so India will clearly remain one of the fastest growing economies in the world."
According to ICRA, GDP growth in the fourth quarter is expected to ease to a three-quarter low of 7% from 7.8% in Q3 of 2025-26. A slower expansion across the industrial and services sectors is expected to have moderated GDP growth between these quarters, even as the performance of the agriculture sector is likely to have improved slightly. The agency noted that a slower rise in manufacturing volumes, contraction in exports, and nascent signs of margin pressure amid the West Asia fallout may have weighed on industrial gross value added (GVA) growth performance in the quarter. ICRA's estimate of 7% GDP growth in Q4 2025-26 is below the NSO's implicit estimate of 7.3% for the quarter, though it remains quite robust. Slowing global growth and shipping disruptions triggered by the West Asia conflict weighed on India's merchandise exports in the March quarter of 2025-26, which fell by 2.8% on a year-on-year basis, after a modest 1.4% rise in the December quarter. As per Shantanu Mukherjee, Director of Economic Analysis and Policy Division, UN DESA, for many countries that rely on exports, it is important to keep in mind that when import costs go up, exports could also suffer, representing a longer-term structural issue. "This is a longer term structural issue that you may begin to see play out when things like freight costs, logistics costs, industrial petrochemicals… like diesel fuel start increasing the cost for businesses," he explained.
According to India Ratings, India would find it difficult to meet its fiscal deficit target of 4.3% of GDP in FY27, mainly because of fuel and fertiliser subsidies, reduced excise duties on petrol and diesel prices, and likely monetary supports to counter El Nino's impact on the economy. As reported by Mint, these factors are expected to significantly impact the government's fiscal management capabilities. UNCTAD notes that recent trade agreements with the European Union and the United States may support exports, but also imports, on top of more costly oil imports, which represent over 20% of its trade balance. The UN report emphasizes that India has some space to manage these shocks within existing buffers before inventories and fiscal space run out, which is crucial for managing the current crisis. Mukherjee noted that "Having said that, like many other large economies, India has some space to manage these, which is why I think we've been saying all along that a lot depends on whether you can manage these shocks within existing buffers before your inventories, fiscal space run out. That's crucial."
According to India Ratings & Research, the Indian rupee is expected to depreciate significantly, with the agency estimating the rupee-dollar exchange rate to average ₹94.28 in FY27, representing a 6.7% year-on-year depreciation. The Indian rupee touched a record low of 96.47 to a dollar on May 19, 2026, reflecting the ongoing currency pressure. India Ratings expects the government to announce easy access to credit and measures like credit guarantees as opposed to direct cash transfers to shield people and small industries from the impact of the West Asia crisis. For the April-June quarter of the current fiscal year, India Ratings estimates GDP growth at 6.7%, with the El Niño impact expected to be felt more in the July-September quarter as against the June quarter. The UN report notes that global GDP growth is now forecast at 2.5% in 2026, which is 0.2 percentage points below the January projection and well below pre-pandemic norms.
