India growth outlook 2026: Reuters poll sees 6.7% GDP

Growth view holds, but risks are shifting

India’s growth outlook remains broadly steady even as the US-Israeli war with Iran disrupts energy markets and raises input costs, according to a Reuters poll of economists. The poll outcome suggests forecasters have not yet built a large, immediate downgrade into their GDP estimates. But economists flagged a key limitation: the headline GDP numbers may not reflect stress that is building in the informal sector. That part of the economy has limited real-time data on jobs, demand, and small businesses, making early damage hard to quantify. The concern is not about whether the formal economy is still expanding, but whether the shock is unevenly distributed. In practical terms, the first signs are appearing where fuel availability and prices matter most.

Why the informal economy is central to this story

Economists said anecdotal evidence points to early strain in India’s shadow economy, which has previously accounted for almost half of official GDP readings. The informal sector typically has lower cash buffers and weaker ability to absorb sudden cost shocks. That means supply disruptions and higher fuel prices can translate faster into reduced hours, fewer workers, and weaker consumer demand. The warning is not that GDP data is wrong, but that it can lag or understate pain in segments that are difficult to measure. Even with improvements, the data may not immediately capture what happens to micro enterprises and casual employment.

Urban services show early pressure from fuel disruptions

The Reuters report highlighted stress in urban services, especially restaurants and hotels. In cities, where roughly 60 percent of GDP is generated, some establishments have reportedly reduced operating hours, cut menus, or shifted to alternative fuels such as firewood. The trigger cited is disruption to supplies of liquefied petroleum gas as the Middle East conflict affects energy flows. These are operational changes that can show up quickly in footfalls and employment, but they may be only partially visible in standard economic aggregates. The episode also underlines how supply-side shocks can ripple beyond transport fuel and into day-to-day services.

Reuters poll: FY growth forecast unchanged at 6.7%

India’s gross domestic product is expected to grow 6.7 percent in the current fiscal year, based on a Reuters poll conducted from April 20 to 27 covering 54 economists. That estimate was unchanged from March’s forecast. The forecast implies a modest slowdown from 7.0 percent predicted for the year ending March 31, 2026. Economists’ projections for fiscal 2026-27 varied widely, ranging from 5.9 percent to 7.5 percent. Growth was expected to edge up to 6.8 percent in 2027-28. The range of estimates signals uncertainty around how long external disruptions persist and how they transmit into domestic demand.

What economists said about GDP undercounting informal stress

Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, said the informal segment is the “worst hit” and its ability to absorb shocks is “very low,” warning of ripple effects on jobs and demand if the issue persists beyond the near term. Indranil Pan, chief economist at Yes Bank, said disruption to the informal sector would not be captured very significantly by India’s GDP reading. He added that this was also a reason economists had not changed GDP estimates “much at this point in time.” The comments frame a key analytical point: stable forecast numbers can coexist with rising distributional stress. That matters for investors tracking consumption, services demand, and small-business cash flows.

Inflation seen at 4.5%, and rates expected on hold

Inflation was seen averaging 4.5 percent this fiscal year, within the Reserve Bank of India’s 2 percent to 6 percent target band, but more than double last year’s pace, according to the Reuters survey. Despite the expected rise in inflation, the poll indicated the RBI would keep interest rates on hold until end-2027. Economists also noted that the government has tried to shield the economy from price pressures by cutting fuel duties. However, they warned that a prolonged Middle East conflict could hurt public finances. That could increase pressure to reallocate spending, especially if subsidy demands rise.

Capex versus subsidies: the fiscal trade-off to watch

One concern raised by economists is that persistent high energy costs may force a shift in government spending. Capital expenditure has been described in the report as a main growth driver amid weak private investment. If the conflict persists and price pressures intensify, economists warned there could be a material diversion of funds from capex to subsidies. That would not be a short-term market headline alone. It would also alter the composition of growth by reducing investment-led support while cushioning consumption through subsidies. The fiscal balance between these priorities will be a key variable for equity sectors linked to government infrastructure spending.

PMI signals resilience in April, after March’s slowdown

A separate flash survey showed India’s private sector activity accelerated in April despite disruptions pressuring costs and raising oil prices. HSBC’s flash India Composite PMI, compiled by S&P Global, rose to 58.3 in April from 57.0 in March, staying above the 50 threshold that separates expansion from contraction for nearly five years. Manufacturing led the April improvement, with the PMI at 55.9 versus 53.9, and the output index at 59.1 versus 55.7. Services also strengthened modestly, with the business activity index at 57.9 versus 57.5. Pranjul Bhandari, chief India economist at HSBC, said firms were building buffer stocks to manage uncertainty around the supply-side shock.

March data showed a sharper loss of momentum

Another Reuters report from March described private sector expansion at its weakest pace in over three years, as price shocks dampened domestic demand even as international orders hit a record high. The flash Composite PMI fell to 56.5 in March from February’s 58.9, below a Reuters poll median estimate of 59.0. Manufacturing was hit harder, with the PMI at 53.8 compared with 56.9, described as a four-and-a-half-year low. Services eased to 57.2 from 58.1. The report said input costs rose at their fastest pace since June 2022, while selling prices climbed to a seven-month high, with firms absorbing part of the cost increase through margin compression.

Core sector and output indicators add to the mixed picture

Separately, commentary referenced core sector output contracting 0.4 percent in March, the first contraction in five months. Anitha Rangan, chief economist at RBL Bank, linked slower activity partly to disruptions such as gas availability issues affecting segments like ceramics. She said a larger margin impact may be felt more in the April quarter unless conditions resolve quickly. The same segment cited expectations of roughly 7 percent GDP growth for Q4, bringing full-year GDP growth to about 7.5 percent. While these are not the Reuters poll’s central estimates, they add context on how near-term indicators can diverge by sector.

Key numbers mentioned across the reports

Market impact: what matters for investors

For markets, the immediate takeaway is a split signal. The Reuters poll kept the growth forecast unchanged, while survey indicators show both a March slowdown and an April rebound in private sector activity. The transmission channel investors are likely to monitor is energy: disruption through the Strait of Hormuz was described as choking supplies, pushing up fuel and raw material costs. Cost pressure dynamics also matter, because the surveys indicated output price increases lagged input costs, implying margin pressure. Another investor-sensitive channel is fiscal policy. Economists warned that longer conflict could pressure public finances and lead to a shift away from capex, which could affect sectors dependent on government investment.

Analysis: steady forecasts, but stress may be undercounted

The most important analytical point in the material is not a single forecast number but the quality of measurement during shocks. Economists explicitly warned that GDP readings may not capture informal-sector disruption “very significantly,” especially when real-time data on jobs and demand is limited. That creates a risk of underestimating near-term weakness in services and consumption-sensitive segments, even as formal sector activity and PMI readings remain in expansion. It also explains why forecasters may hesitate to change headline GDP estimates quickly, even when anecdotal evidence suggests stress. For policymakers, the challenge is balancing inflation control, fiscal support, and investment priorities without clear visibility into the most vulnerable parts of the economy.

Conclusion

The Reuters poll suggests India’s growth outlook remains intact for now, with FY GDP seen at 6.7 percent, but economists are increasingly focused on what official data may be missing. Early operational disruptions in urban services and warnings about informal-sector stress highlight the uneven nature of the shock from the US-Iran conflict. Inflation is expected to average 4.5 percent this fiscal year, while the RBI is seen holding rates until end-2027. Near-term business surveys show a March slowdown followed by an April rebound, pointing to resilience alongside cost pressures. Investors and policymakers will closely track energy supply conditions, fiscal choices between capex and subsidies, and whether informal sector strains become more visible in upcoming data releases.