The ebbs and flows of information pertaining to the West Asia conflict have induced significant volatility in views on India’s macroeconomic outcomes over the past three months.

The shelf life of macro forecasts has become painfully short, and while revisions thereof have largely been of the undesirable kind so far, sustained positive news flows, such as those seen over the last few days, may lead to a reversal in these trends. This backdrop makes the Monetary Policy Committee’s (MPC) upcoming policy decision particularly challenging.

Retail inflation has been relatively well-behaved so far. CPI inflation only inched up from 3.2% in February 2026 to 3.5% in April 2026, largely on account of a base-effect-led hardening in food and beverage (F&B) inflation.

The adverse impact of the West Asia conflict has been limited to select items such as airfare, restaurants, and some fuels. While the stricter measure of core CPI inflation, which also excludes petrol and diesel, and jewellery in addition to F&B and electricity, gas and other fuels, has risen marginally to 2.2% in April 2026 from 2.1% in Q4 FY2026, it remains at extremely benign levels, suggesting that both demand and supply-side pressures have been contained so far.

However, a large part of the pain lies ahead. Multiple hikes in the retail selling prices (RSPs) of petrol and diesel during May 2026 are set to push up the headline CPI inflation trajectory for the fiscal year by at least 40-50 bps. Besides, the spectre of El Nino and a deficient rainfall may also exert upward pressure on food prices during the fiscal.

Icra expects the CPI inflation readings to cross the 4% mark in May 2026 and edge past the 5% mark by July-August 2026. For FY27, we expect the print to average 5.0%, with risks tilted to the upside, higher than the MPC’s forecast of 4.6% for the fiscal year. We are particularly concerned about any potential generalisation of food and fuel price pressures to the rest of the CPI basket, which could lead to persistently high headline and core inflation readings.

On the growth front, the GDP data for Q4FY26 will only be released after the MPC’s decision. High-frequency data suggests that growth is likely to have remained resilient during that quarter, with a limited impact of the West Asia conflict visible in March 2026. We expect the GDP growth to have slowed to 7.0% in the quarter from 7.8% in Q3FY26, led by manufacturing and services sectors.

Thereafter, several high-frequency indicators point to a further slowdown in the growth in economic activity in April 2026, and this is only likely to exacerbate in May 2026. Besides, intensifying input cost pressures are also expected to weigh on business margins during the ongoing quarter, weighing on GVA growth. Overall, we expect India’s GDP growth to fall to sub-6% in Q1FY27, after a gap of three years.

The uncertainty around the resolution of the conflict along with elevated energy prices is expected to impact the prospects for investment demand, hurt corporate profitability and dampen consumer sentiments.

Besides, the potential development of El Nino conditions and weak monsoon forecast for 2026 have dulled the agricultural outlook and rural demand prospects for H2FY27. Assuming an average crude oil price of around $95 per barrel in FY27, we expect GDP growth at 6.2% in the fiscal year, well below the MPC’s projection of 6.9%.

Overall, we expect the MPC to raise its CPI inflation projections while simultaneously paring its GDP growth forecasts in the upcoming meeting later this week, complicating its policy decision. Nevertheless, we believe that the committee would maintain status quo on policy rates as well as stance, while expressing abundant caution in the policy statement.

Although inflation outcomes are expected to be far worse than those expected before the onset of the conflict, the CPI inflation readings are still expected to remain well within the upper limit of the RBI’s target range of 2-6%. Further, a part of the impact pertaining to higher energy prices is likely to be transitory in nature, and some reversal on this account may take place once crude oil prices cool. In such a scenario, it would be ideal to wait to assess the generalisation of price pressures before transitioning to monetary tightening.

Moreover, the hit to growth from the West Asia conflict and the El Niño would be intensified in case of an early monetary tightening. Given that inflation is expected to remain within target range, the MPC should remain focused on supporting growth outcomes in the immediate term, making use of the flexibility imparted to it under the Flexible inflation Targeting (FIT) framework. However, we do not rule out rate hike(s) in H2FY27, once the monsoon impact is clearer, and uncertainty around the outcomes of the West Asia conflict subsides.

Aditi Nayar, chief economist, head- research & outreach, ICRA Ltd.

The ebbs and flows of information pertaining to the West Asia conflict have induced significant volatility in views on India’s macroeconomic outcomes over the past three months.

The shelf life of macro forecasts has become painfully short, and while revisions thereof have largely been of the undesirable kind so far, sustained positive news flows, such as those seen over the last few days, may lead to a reversal in these trends. This backdrop makes the Monetary Policy Committee’s (MPC) upcoming policy decision particularly challenging.

Retail inflation has been relatively well-behaved so far. CPI inflation only inched up from 3.2% in February 2026 to 3.5% in April 2026, largely on account of a base-effect-led hardening in food and beverage (F&B) inflation.

The adverse impact of the West Asia conflict has been limited to select items such as airfare, restaurants, and some fuels. While the stricter measure of core CPI inflation, which also excludes petrol and diesel, and jewellery in addition to F&B and electricity, gas and other fuels, has risen marginally to 2.2% in April 2026 from 2.1% in Q4 FY2026, it remains at extremely benign levels, suggesting that both demand and supply-side pressures have been contained so far.

However, a large part of the pain lies ahead. Multiple hikes in the retail selling prices (RSPs) of petrol and diesel during May 2026 are set to push up the headline CPI inflation trajectory for the fiscal year by at least 40-50 bps. Besides, the spectre of El Nino and a deficient rainfall may also exert upward pressure on food prices during the fiscal.

Icra expects the CPI inflation readings to cross the 4% mark in May 2026 and edge past the 5% mark by July-August 2026. For FY27, we expect the print to average 5.0%, with risks tilted to the upside, higher than the MPC’s forecast of 4.6% for the fiscal year. We are particularly concerned about any potential generalisation of food and fuel price pressures to the rest of the CPI basket, which could lead to persistently high headline and core inflation readings.

On the growth front, the GDP data for Q4FY26 will only be released after the MPC’s decision. High-frequency data suggests that growth is likely to have remained resilient during that quarter, with a limited impact of the West Asia conflict visible in March 2026. We expect the GDP growth to have slowed to 7.0% in the quarter from 7.8% in Q3FY26, led by manufacturing and services sectors.

Thereafter, several high-frequency indicators point to a further slowdown in the growth in economic activity in April 2026, and this is only likely to exacerbate in May 2026. Besides, intensifying input cost pressures are also expected to weigh on business margins during the ongoing quarter, weighing on GVA growth. Overall, we expect India’s GDP growth to fall to sub-6% in Q1FY27, after a gap of three years.

The uncertainty around the resolution of the conflict along with elevated energy prices is expected to impact the prospects for investment demand, hurt corporate profitability and dampen consumer sentiments.

Besides, the potential development of El Nino conditions and weak monsoon forecast for 2026 have dulled the agricultural outlook and rural demand prospects for H2FY27. Assuming an average crude oil price of around $95 per barrel in FY27, we expect GDP growth at 6.2% in the fiscal year, well below the MPC’s projection of 6.9%.

Overall, we expect the MPC to raise its CPI inflation projections while simultaneously paring its GDP growth forecasts in the upcoming meeting later this week, complicating its policy decision. Nevertheless, we believe that the committee would maintain status quo on policy rates as well as stance, while expressing abundant caution in the policy statement.

Although inflation outcomes are expected to be far worse than those expected before the onset of the conflict, the CPI inflation readings are still expected to remain well within the upper limit of the RBI’s target range of 2-6%. Further, a part of the impact pertaining to higher energy prices is likely to be transitory in nature, and some reversal on this account may take place once crude oil prices cool. In such a scenario, it would be ideal to wait to assess the generalisation of price pressures before transitioning to monetary tightening.

Moreover, the hit to growth from the West Asia conflict and the El Niño would be intensified in case of an early monetary tightening. Given that inflation is expected to remain within target range, the MPC should remain focused on supporting growth outcomes in the immediate term, making use of the flexibility imparted to it under the Flexible inflation Targeting (FIT) framework. However, we do not rule out rate hike(s) in H2FY27, once the monsoon impact is clearer, and uncertainty around the outcomes of the West Asia conflict subsides.

Aditi Nayar, chief economist, head- research & outreach, ICRA Ltd.