India’s manufacturing sector growth is projected to drop to a nearly two-year low in the first quarter of fiscal year 2026-27, weighed down by rising input costs and squeezed profit margins tied to ongoing geopolitical tensions in West Asia. According to an assessment released by rating agency ICRA on Tuesday, manufacturing gross value added (GVA) growth is expected to decelerate to around 6.0% in the April–June quarter (Q1 FY27), down from 7.3% in Q4 FY26. If these estimates hold, it would mark the slowest pace of expansion for the sector since Q2 FY25.
The slowdown in value addition comes despite a noticeable pickup in factory output. ICRA's data shows manufacturing volumes climbed 6.3% in Q1 FY27—the fastest pace in six quarters—compared to 4.7% in the previous quarter. However, higher physical production failed to yield stronger financial returns for companies. This widening gap between factory output and value added underscores how elevated raw material prices and volatile global commodities can undercut strong operational activity on the ground.
A sample study of 978 listed manufacturing companies by ICRA highlighted the core pressure point: while top-line revenues continued to grow, operating profits slipped back into negative territory after a brief recovery in late FY26. The agency attributed the profit slump largely to spikes in crude oil and petrochemical prices driven by maritime disruptions in the West Asian transit corridor. These elevated procurement costs hit oil refiners and chemical processors particularly hard, eating away at operational margins.
The impact was split across industries. Resource-heavy verticals such as basic metals, petroleum refining, and chemicals saw sharp performance drops due to shipping delays, freight rate spikes, and commodity price swings. In contrast, sectors tied to capital goods and domestic consumption held up better. Electronics, electrical equipment, industrial machinery, and automotive manufacturing posted steady gains, buoyed by consistent capital expenditure and resilient urban demand
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The cooling manufacturing momentum is also expected to pull down India’s broader GDP growth for Q1 FY27 to around 7.0%—a four-quarter low. Alongside softer services growth, overall GVA expansion is projected to moderate to 7.2% from 7.9% in the preceding quarter, while agriculture is estimated to grow at a steady 4.0%.
Despite the near-term margin squeeze, full-year projections remain steady, with both the Reserve Bank of India and ICRA projecting overall economic growth at 6.7% for FY27. However, sustained momentum in private investment will largely hinge on how quickly global cost pressures ease and whether international transit routes stabilize in the months ahead.