India’s economic growth is expected to moderate to 6.6 per cent in FY2026-27, down from 7.7 per cent recorded in FY2025-26, as the impact of last year’s Goods and Services Tax (GST) reforms fades and elevated inflation weighs on household incomes, according to Fitch Group company BMI.
BMI, in its latest Asia-Pacific outlook, said India would continue to be the fastest-growing large economy in the region, but risks to the growth outlook remain tilted to the downside.
“We expect growth to moderate from 7.7 per cent in FY2025/26 (April-March) to 6.6 per cent in FY2026/27, as the lift from last year’s Goods and Services Tax reforms wears off while elevated inflation erodes household incomes,” BMI said.
The Indian economy expanded 7.7 per cent in FY2025-26, benefiting from stronger domestic activity and the boost provided by GST reforms introduced in September last year. Under the reforms, tax rates on 375 items were reduced, while the earlier four-tier GST structure was rationalised into two main slabs of 5 per cent and 18 per cent.
BMI expects inflation to remain elevated, averaging 5.4 per cent in FY2026-27, which could constrain household purchasing power and private consumption.
Middle East conflict remains key risk
BMI identified developments in the Middle East as one of the major risks to India’s growth outlook. A renewed escalation in the US-Iran conflict could push global oil prices higher, increasing inflationary pressures and weakening real incomes and consumption across the region.
The agency’s baseline assumes that a preliminary deal between the US and Iran will be implemented within the quarter. However, any delay or breakdown in the agreement could result in oil prices rising above BMI’s 2026 average forecast of $86 per barrel.
The disruption of oil shipments through the Strait of Hormuz remains a particular concern.
“We are watching for signs of two-way tanker traffic picking up through the Strait of Hormuz,” BMI said, adding that even a deal that leaves the strategic waterway disrupted could result in more adverse oil-price and regional growth outcomes.
A weaker-than-expected monsoon also represents a downside risk for India’s growth, particularly through its impact on agricultural output, rural incomes and consumption.
Despite the expected slowdown in India, BMI forecasts Asia-Pacific growth at 4.1 per cent in 2027, describing the region’s overall outlook as steady even as its fastest-growing major economy loses some momentum.