MUMBAI: Despite the widening global crisis and rising energy prices, the economy is likely to grow 7.1% in fiscal 2027 over the likely 7.6% clip this fiscal, buoyed by the revival of private capex in new age sectors and robust domestic consumption.
The expected growth will be anchored by domestic demand, with policy support lifting household disposable incomes, public capex staying on course and private capex expanding in emerging, policy-supported sectors, Crisil economists said Wednesday.
At the same time, global headwinds, especially trade uncertainty and the influence of geopolitics on commodity prices, raise the bar on execution, making policy consistency, competitiveness, reforms and private-sector balance-sheet strength critical to sustaining the next capex upcycle, they warned.
The 7.1% growth forecast is predicated on four assumptions-- another spell of normal monsoons with a likelihood of El Niño forming after August; benign food inflation in spite of an uptick from a statistical low-base effect; crude averaging at $75-80 a barrel, and finally steady global growth even as tariff and geopolitics-led uncertainties persist, Amish Mehta, managing director of Crisil Ratings told reporters Wednesday.
On the impact of the Iran war and the resultant spike in crude prices, Joshi said, rising input cost will crimp realisations leading to 40-60 bps decline in operating margins due the ongoing supply disruptions and price spike. If crude and gas prices stay higher for longer, there could be further strain. Volatility and upswing will impact margins in sectors such as airlines, ceramics, chemicals, fertilisers, paints, petrochemicals and tyres, Joshi said.
The 7.1% assumption underscores the country’s ability to absorb shocks while continuing to compound growth as domestic demand, public capex on infra and a gradually broadening private sector capex cycle counterbalance an uncertain external environment, shaped by rising protectionism and geopolitical flare-ups.
Domestic demand continues to be supported by fiscal measures such as income tax cuts, GST rate cuts, higher direct benefit transfers and adequate liquidity which has lowered borrowing costs for the economy.
“Our forecast reflects strong domestic counterweights, especially consumption, infrastructure capex, uptick in the private investment cycle led by emerging sectors and gradually improving trade competitiveness. However, continuing geopolitical conflicts, proliferation of technology-driven disruptions, high public debt levels and climate vagaries will need close monitoring,” Mehta said.
Domestic demand will remain the key growth engine in fiscal 2027. Private consumption, at 57% of GDP, continues to anchor growth, though its pace may moderate as the one-off tax benefits taper, he added.
Retail inflation is expected to rise to 4.3% as food prices normalise, though lower food weight should contain headline pressures, barring oil volatility. Discretionary sectors such as autos, durables, airlines and hotels should outperform on better affordability and latent demand, while structural trends, such as smaller households, more women in the workforce and rising incomes will sustain aspirational consumption.
Dharmakirti Joshi, chief economist at the agency said, “domestic demand is expected to stay supportive next fiscal, with fiscal measures lifting disposable incomes and private investment seeing a mild pick-up. That said, risks remain tilted to the downside, given renewed geopolitical flare-ups and lingering trade-related uncertainty that can transmit through commodity prices, trade and capital flows.”
Export momentum is likely to hold in fiscal 2027, supported by steady global demand, robust services exports and opportunities expected to arise from the recently signed trade agreements, even as earlier front-loading fades. Geopolitical conflicts, especially in the Middle East, pose risks through potential spikes in crude and commodity prices and possible disruptions to trade and capital flows, Joshi added.
Corporate revenue growth is expected to stay in the 8-9% range, backed by resilient consumption and a gradual pick-up in private investment, though commodity-linked sectors may face pricing pressure and growth in construction‑related segments could moderate.
Lower borrowing costs and sustained public capex--3.1% of GDP--will continue to support demand and crowd in private investment, with industrial capex driven by production linked incentive-based and emerging sectors, such as electronics, semiconductors, electric vehicles, solar photovoltaic panels, defence and artificial intelligence-related infrastructure.
According to Priti Arora, president and business head at Crisil Intelligence, industrial capex could strengthen as the investment cycle broadens beyond public infrastructure into manufacturing and new-age sectors, rising to Rs 9.1 trillion per annum between fiscals 2027 and 2031, which is a 1.5x step-up.
Within this, emerging sectors are expected to grow sharply, including semiconductors and electronics (4.7x), EV manufacturing and charging (3.1x) and ACC batteries (3.3x), she said.
Export competitiveness is improving because of a multi-pronged strategy spanning infrastructure, technology adoption, skill development and market access, supported by government initiatives aimed at localisation and value-chain integration.
Exports are expected to double to Rs 80 trillion by fiscal 2031. This remains critical, given the country’s modest share in incremental global exports over the past decade, reinforcing the strategic case for a deeper manufacturing base.