08:29:25 AM IST, 06 Oct 2026
India growth could lose 1.84 percentage points by 2028 in stagflation shock: BMI
India’s real GDP growth could take a hit of up to 1.84 percentage points by 2028 if a weak monsoon coincides with an escalation in the US-Iran conflict, triggering a sharp inflation shock, BMI, a unit of Fitch Solutions, said. The firm said the two risks could produce a stagflationary outcome as higher inflation weighs on growth and forces monetary policy to tighten.
BMI modelled a 5 percentage point and an 8 percentage point inflation shock, with each lasting four quarters. Under the milder scenario, growth would be 0.78 percentage point lower in 2027 and 1.15 percentage points lower in 2028, while the 8 percentage point shock would cut growth by 1.24 percentage points and 1.84 percentage points, respectively. The firm said India’s growth mix is already deteriorating, with consumption cooling and the boost from export front-loading expected to unwind.
The shocks would also leave the Reserve Bank of India with little choice but to tighten policy, BMI said. Adding 100 basis points or 200 basis points of rate hikes to the inflation scenarios would shave a further 0.12-0.18 percentage point off annual growth and could raise unemployment by as much as 0.80 percentage point by 2028. India remains the fastest-growing G20 economy, with real GDP growth of 8.6% year-on-year in Q1 2026 and 7.8% in Q2.