S&P Global Ratings on Wednesday raised India’s GDP growth forecast for the next fiscal to 7.1 per cent, with private consumption, investment and exports being key drivers, but said that the conflict in the Middle East could strain the fiscal position due to higher energy prices arising from the conflict.
In its latest quarterly Asia-Pacific economic commentary, S&P Global Ratings said risks from renewed geopolitical tensions and persistent trade-related uncertainties could affect India through fluctuations in commodity prices, trade volumes, and capital flows.
It expects fuel prices in India to rise if oil prices remain elevated, to contain subsidy costs, but does not foresee a full pass-through.
“We project real GDP growth to moderate to 7.1 per cent in the fiscal year ending in March 2027, compared with 7.6 per cent in fiscal 2026. Key drivers are resilient private consumption, a modest recovery in private investment, and solid exports,” it said.
The 2025-26 growth has been revised upwards by 0.4 percentage points to 7.6 per cent, and by 0.2 percentage points to 7.1 per cent for 2026-27 fiscal.
S&P expects inflation to rise to 4.3 per cent in fiscal 2027 as it normalizes from low levels.
Higher crude prices will likely widen the trade deficit, but a healthy surplus in services trade should help contain the current account deficit.
Overall, S&P expects the central bank to hold rates steady and maintain a neutral stance, it said.
It said the Middle East conflict will weigh on the Asia Pacific region’s economies with majority of nations being major net energy importers relying heavily on Middle East supply.
“Higher energy prices erode purchasing power and depress domestic demand. In countries such as India, Indonesia, Japan, Malaysia, and Thailand, higher prices will force greater spending on subsidies and thereby strain fiscal positions,” it added.
S&P’s baseline forecasts assume Brent to average USD 92 bbl (barrels of oil) in the June quarter and about USD 80 bbl in 2026.
The baseline forecast assumes that the Strait of Hormuz will face material disruptions until early April, with flows recovering gradually thereafter.
However, in an unfavourable scenario, where the energy market disruption is more pronounced and lasts longer, and the Brent crude oil price averaging USD 185 bbl in the June quarter, and averaging almost USD 130 bbl in 2026, S&P said in India, the central bank would likely tighten policy in response to energy-price inflation, after assessing its persistence.
“We would expect one 25 bps rate hike in the second half,” S&P said.
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