HSBC has cut its forecast for India's GDP growth in the financial year 2026-27 to 6%, down sharply from its earlier estimate. The bank cited two concurrent pressures: an energy crisis and deficient rainfall, both of which it expects to weigh on economic output through the year.

The revision is notable because 6% sits at the lower end of what most economists consider India's comfortable growth range. A shortfall in rainfall directly squeezes agricultural output and rural incomes, which together account for a large share of domestic consumption. Energy stress, meanwhile, raises input costs across manufacturing and services, compressing margins and slowing investment decisions.

Why These Two Shocks Hit Hard Together

The combination matters because agriculture and energy are not isolated sectors, they feed through to the broader economy quickly. Poor monsoons reduce farm income, which pulls down rural spending on everything from consumer goods to two-wheelers. At the same time, higher energy costs act like a tax on businesses and households, leaving less money to spend or invest elsewhere. When both hit at once, the drag on growth compounds rather than adds.

HSBC also expects the Reserve Bank of India to respond with two rate cuts over the forecast period. Rate cuts are typically used to stimulate borrowing and spending when growth slows. If the RBI follows through, cheaper loans could offer some cushion to businesses and consumers facing squeezed incomes, though monetary policy works with a lag and cannot directly fix a rainfall shortfall or an energy supply problem.

What to Watch

The critical variables from here are monsoon performance across key agricultural states, the trajectory of domestic energy supply and prices, and whether the RBI's rate decisions align with HSBC's two-cut expectation. Any improvement in rainfall or energy availability could limit the downside to growth, while a deeper or more prolonged stress in either area could push actual outcomes below even HSBC's revised 6% forecast.

For markets, a 6% growth print would represent a meaningful step down from recent years and could affect earnings expectations in consumption-linked sectors, rural-facing consumer companies, and energy-intensive industries. Bond markets may find some support if RBI rate cuts materialise as HSBC projects.