India's FY27 growth forecast cut to 6.6% as Iran war tightens fiscal space: S&P Global

New Delhi: India's growth outlook faces pressure from the Iran war, with tightening fiscal space and risks to capital expenditure emerging as key concerns, said Deepa Kumar, head of Asia-Pacific country risk at S&P Global Market Intelligence.

The firm pared India's FY27 economic growth forecast to 6.6% from 7.1% earlier, reflecting the impact of the ongoing geopolitical tensions. Gross domestic product (GDP) growth for FY26 is estimated at 7.6%, according to official estimates.

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The downgrade is due to onset of the conflict, Kumar told ET, adding its duration remains uncertain and that the pressures are unlikely to be lifted immediately.

A key concern, she noted, is the narrowing fiscal space after years of post-pandemic consolidation, and whether this will constrain capital expenditure. Infrastructure spending has been India's major growth driver in recent years.

S&P Global Market Intelligence expects the debt-to-GDP ratio to rise to 57.5% from 56.1% in FY26, delaying the target of 49-51% by FY31.

Kumar also pointed out, "India is growing at a time when the world's idea of globalisation is more conditional," compared to economies like Japan, South Korea, and Taiwan, which expanded when the world was very much in favour of globalisation.

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Despite the near-term risks, Kumar sees several structural drivers supporting India's medium-term growth, including the services sector, manufacturing diversification, and artificial intelligence-led transformation.

"The services sector is expected to expand its share in India's GDP to nearly 55% by 2030, supported by services-focused free trade agreements (FTAs) , tourism and medical tourism opportunities," added Kumar.

She highlighted that textiles and renewables, particularly solar PV panels are areas offering scope for growth for India.

Kumar emphasised that building diversified and resilient supply chains is key to reducing risks in manufacturing.

She concluded that ensuring labour is adequately and accurately skilled and employed is a major factor in supporting Indian growth or mitigating any risks.