MUMBAI: Citing the early impact of the ongoing Iran war which has spiked energy prices massively apart from disrupting supply chains, rating agency Icra expects the March quarter growth to moderate to a three-quarter low of 7%, down from 7.8% in the previous quarter and the full-year growth to print in at 7.5%.
As against the practice of May 30 release, the government has delayed the annual and Q4 macro data to June 7 this year.
The agency has also revised its FY27 growth forecast downward to 6.2% from 6.5%, as it expects crude prices to remain elevated as the geopolitical uncertainty to linger on.
According to its chief economist Aditi Nayar, the Q4 slowdown is driven primarily by weaker industrial and services sector growth, along with disruptions in exports and rising input costs affecting manufacturing margins.
Merchandise exports led by as textiles, pharmaceuticals, and gems & jewellery witnessed contraction in shipments, contracted 2.8% on-year in Q4 FY26, impacted by slowing global growth and shipping disruptions linked to the Iran war.
Manufacturing GVA growth is estimated to have moderated to 8–9% in Q4, slipping into single digits after five consecutive quarters of double-digit growth.
She also highlights the Iran war also triggering financial market volatility, with the benchmark 10-year G-Sec yield rising sharply to 7.04% by end-March, impacting banks profitability through mark-to-market losses.
The agency expects crude prices to average around $95 a barrel in FY27, significantly higher than its earlier assumption of $85.
Despite the moderation, she notes that growth remains “quite robust”, with agriculture expected to show a marginal improvement supported by healthy rabi output, although unseasonal weather poses risks to yields.
She sees industrial sector to have grown 7.3% down from 9.7% in Q3) and the services at 8.5% as against 9.5% in Q3), even as the performance of the agriculture sector is expected to be 2.1% as against 1.4% in Q3.
Slowing global growth and shipping disruptions triggered by the Iran war weighed on merchandise exports in Q4, which fell by 2.8%, after a modest 1.4% rise in Q3. Shipments of textiles, pharmaceuticals and gems and jewellery contracted in Q4. Based on available trends, the agency projects manufacturing GVA to ease to 8-9% in Q4 from 13.3% in Q3, falling to a single digit after a gap of five quarters.
Among the other industrial sub-segments, mining output increased to 4.3% from 3.8% in Q3, while electricity generation likely rose 2.7% after contracting by 1% in Q3. Further, infrastructure/construction goods rose 10.7% as against 11% in Q3 although intense competition and surge in some commodity prices in March may have compressed margins.
Government's non-interest revenue expenditure contracted by 5.6% to Rs 3.7 trillion in January-February, after declining by 3.5% in Q3 to Rs 5.4 trillion. Subsequently, items included in the 2nd supplementary demand for grants would have increased revenue expenditure, including Rs 1 trillion to be transferred to the economic stabilisation fund.