India's growth to slow to 6.7% on oil price shock

India's economic growth is likely to decelerate to 6.7 per cent in the current fiscal, from 7.7 per cent in 2025-26, with the GDP expansion expected to slow significantly due to waning momentum and oil price shock from Iran war, BMI said on Monday.

BMI, a Fitch Group firm, also said that the prospect of the Iran-US conflict escalating in scope presents downside risk to its growth outlook and India must balance spending needs on defence and fuel price stabilisation against fiscal consolidation agenda.

The tax reforms in GST and income tax carried out in 2025 will partly offset effects of cost-push inflation, BMI said, adding looser monetary policy will support capital spending, as increased uncertainty amid the war and higher input prices hurt investment.

BMI estimates that India's economy grew 8 per cent y-o-y in the January-March quarter of 2026, faster than its original 7.8 per cent projection.

It has revised its growth forecast for 2025-26 upwards by 0.1 percentage points to 7.7 per cent.

"We maintain our forecast of 6.7 per cent GDP growth during FY2026-27 due to our belief that the effects of last year's tax reforms will fade as input costs increase in the new fiscal year," BMI said, adding GDP growth could "slow significantly" due to waning momentum and oil price shock from Iran war.

It said one factor behind the unchanged FY27 forecast is its assessment that the effects of last year's tax reforms will dissipate by April-June quarter of 2026.

Such waning is already apparent in the vehicle registrations data, showing new registrations grew 9 per cent y-o-y in April after rising 23 per cent in January-March. -- PTI