While trends in high frequency indicators for January-February 2026 appear favourable, the heightened uncertainty around the duration of the West Asia conflict casts a shadow on the near-term macroeconomic outlook for countries like India amid high import dependency for items such as crude oil, natural gas and fertilisers. If the conflict lasts for an extended period, the adverse implications of the same could widen across sectors, amid an uptick in input costs and the consequent impact on profitability of India Inc. India’s GDP growth is expected to moderate to 6.5% in FY2027 from the projected 7.5% in FY2026, owing to the adverse impact of elevated energy prices and concerns around energy availability, even as developments around tariffs, lower GST rates, policy rate cuts, subdued food inflation, and upbeat farm sector trends augur well for consumption. Amid the projected uptrend in the CPI inflation in FY2027 (with risks tilted to the upside), we expect an extended pause on the policy rates by the Monetary Policy Committee (MPC) through the fiscal, despite the anticipated softening in the GDP growth. However, we expect the RBI to continue to intervene on the liquidity front during FY2027.
