Summary of this article
India's GDP growth could slow down by 80 bps if crude oil prices remain elevated
India's fiscal consolidation path could suffer temporary setback
India’s economic growth could be impacted as much as 80 basis points in the current fiscal 2026-27 if crude oil shocks persist due to the ongoing tension in West Asia, an analysis by S&P Global Ratings suggested. The impact of surging oil prices could, however, be cushioned by strong macroeconomic fundamentals and the performance of the financial sector, it noted.
“India isn't immune to the shocks reverberating from the West Asia war. The pain of higher energy prices and supply disruptions may persist for months, crimping economic activity across households, corporations, and banks,” the report said. The stress in India’s GDP growth is on the basis of crude oil prices averaging at around $130 per barrel in 2026 and nearly $100 per barrel in 2027, impacting the GDP growth of the country by 80 bps from a base case of 7.1 per cent in FY27.
Under the stress scenario, EBITDA of corporates could decline around 15-25 per cent in FY27, while asset quality of the banking sector is expected to weaken, pushing up bad loans to around 3.5 per cent. Leverages are also expected to rise by 0.5-1 times due to the pressures, it said.
The ratings agency noted that elevated energy prices could weigh on the incomes of households, banks and companies. Central government’s fiscal consolidation path could also face temporary setbacks due to the price pressures, though it is not expected to impact the sovereign rating of the country, it said.
Elevated crude oil prices could widen the current account deficit, with a rise of prices by $10 per barrel expected to expand the gap by around 0.4 percentage points of the GDP. Additionally, the rupee is also expected to face depreciation pressures due to the rising import bill and an overall risk-off sentiment among investors.
The ratings agency flagged that rising energy prices could also impact input costs, squeeze profit margins of corporates, lead to a rise in consumer prices and in turn also increase fiscal strain for the government due to subsidies.
However, robust corporate balance sheets are expected to absorb some of the shocks, it said. Firm capital and the profitability of banks are also expected to cushion the impact of a temporary deterioration in credits and asset quality.
“India's robust external position gives it buffers to absorb some shocks from a higher import bill. We, therefore, don't expect any immediate impact on the ratings of the sovereign, corporates and banks. Even so, the government's efforts at fiscal consolidation could also face temporary setbacks,” the report said.
