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The ongoing US-Iran war, along with the resulting energy shock, supply chain disruptions, and elevated inflation, could weigh on India’s economic growth in FY27, according to UBS.
The global brokerage has revised its India GDP growth forecast downward to 6.2% for FY27, from its earlier estimate of 6.7%, factoring in higher crude oil prices, supply-side disruptions, and expectations of a below-normal monsoon.
“We believe the ongoing energy shock would weigh on consumer sentiment, real incomes and spending, while adversely affecting industrial growth and squeezing margins for several sectors. We think investment growth will slow down amid rising input costs and weak sentiment due to geopolitical uncertainty,” UBS said in a report.
UBS’s baseline assumptions include the Indian crude oil basket averaging $100 per barrel in FY27.
Describing the Middle East conflict as a “historically large energy shock with asymmetric macroeconomic risks,” UBS noted that disruptions have extended beyond crude oil to refined products, shipping, and broader supply chains, raising the risk of non-linear spillovers to both global and domestic economies.
In addition, the India Meteorological Department (IMD) has projected a sub-normal monsoon, with rainfall during the June–September period expected at 92% of the long-period average — the lowest first long-range forecast in at least 26 years.
The weather agency has also assigned a 35% probability to a ‘deficient’ monsoon, higher than the likelihood of ‘sub-normal’ rainfall, underscoring elevated downside risks.
“Our analysis suggests that a deficient monsoon poses moderate downside risks to India’s GDP growth, primarily through its impact on agriculture and rural demand. However, the spatial and temporal distribution of rainfall will be critical to monitor,” UBS added.
UBS observed that India’s economic momentum had already begun to ease in March, with manufacturing activity weakening, core sector growth slowing, and fertiliser production contracting sharply due to gas shortages and rationing.
The brokerage outlined two alternative scenarios, both assuming weak monsoon conditions:
Upside scenario: A swift de-escalation in geopolitical tensions, with the Indian crude oil basket averaging $85 per barrel and gradual resumption of flows through the Strait of Hormuz during the June quarter.
Downside scenario: A prolonged energy shock involving further damage to energy infrastructure, pushing crude prices to around $150 per barrel.
Under the upside scenario, India’s GDP growth could recover to around 6.5% year-on-year. However, in the downside scenario, growth could slow more sharply to 5%–5.5%.
UBS now expects headline CPI inflation to average 5.2% year-on-year in FY27, revised up from its earlier estimate of 4.6%, and significantly higher than the 2.1% level seen in FY26.
Even if the geopolitical conflict eases, UBS believes inflation risks are likely to persist longer than growth risks.
Against this backdrop, the brokerage expects the RBI’s Monetary Policy Committee (MPC) to gradually shift towards rate hikes in the second half of FY27, moving away from its earlier expectation of a prolonged pause.
With banking system liquidity currently comfortable and overnight rates trading near the lower end of the policy corridor, UBS expects the RBI to gradually push overnight rates higher and normalise liquidity towards a more neutral stance.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
Ankit Gohel is the Deputy Chief Content Producer at Livemint, specialising in financial markets, macroeconomics, and regulatory developments. With a strong focus on equity markets, primary issuances, and policy-driven market movements, he brings clarity to complex financial developments for investors and market participants. <br><br> With nine years of experience in business and financial journalism, Ankit’s approach is rooted in the belief that market reporting should go beyond headlines — connecting data, policy, and ground realities to deliver actionable insights. His work consistently bridges the gap between institutional analysis and investor understanding. <br><br> Ankit has spent three years at Livemint, where he currently helps drive market coverage, editorial strategy, and high-impact financial stories. Prior to this, he worked with leading business news networks such as CNBC-TV18, ET Now, TickerPlant News Service where he built deep expertise in stock market analysis, macroeconomic trends, primary markets, and coverage of key regulators including the RBI and SEBI. <br><br> Over the years, he has covered market cycles across bull and bear phases, IPO booms, liquidity shocks, and major policy shifts that reshaped investor sentiment. He has interviewed fund managers, corporate leaders, and policymakers, translating their perspectives into sharp, data-backed narratives. Ankit combines speed with accuracy — ensuring timely, credible, and insight-driven financial journalism that empowers both retail and institutional audiences.
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