India Insight: Between Headwinds and Constraints

India faces macro headwinds from high oil prices, leading to a growth downgrade to 6.4% and an inflation revision to 5.0% for FY27. Fiscal and external accounts are under strain, with a third consecutive year of BoP deficit expected and the INR projected to weaken to 97.5 by end-2026.

Key Takeaways

• 1.India's FY27 GDP growth is projected to moderate to 6.4% as the economy faces a significant energy price shock.
• 2.Inflation risks are building, with CPI revised to 5% for FY27, potentially triggering RBI rate hikes in H2 2026.
• 3.India is entering its third consecutive year of Balance of Payments (BoP) deficit, driven by a wider current account deficit and weak capital inflows.

Table of Contents

• Markets to remain choppier than macro
• Foot in the door, but for how long?
• Growth downgrade is not alarming
• Inflation risks are building up
• Third consecutive year of balance of payments (BoP) deficit
• Case for rate hikes
• Fiscal problems pre-date the oil shock
• Oil shock threatens the fiscal roadmap
• INR's key problem: decline in stable capital inflows
• Is the INR really undervalued?
• Key forecasts

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