S&P Global Ratings on Wednesday has raised India's GDP growth forecast for fiscal 2027 to 7.1% with private consumption, investment and exports as the key drivers of growth. However, the rating agency pointed that the conflict in the Middle East could result in higher energy prices, which in turn would strain the fiscal position of India.
The rating agency in its latest quarterly Asia-Pacific report said risks from renewed geopolitical tensions and persistent trade-related uncertainties could affect India through fluctuations in commodity prices, trade volumes, and capital flows. S&P Global Ratings also expects fuel prices to rise if oil prices remain elevated to contain subsidy costs. However, it does not foresee a full pass-through.
"We project real GDP growth to moderate to 7.1% in the fiscal year ending in March 2027, compared with 7.6% 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%, and by 0.2 percentage points to 7.1% for 2026-27 fiscal. Higher crude prices will likely widen the trade deficit, but a healthy surplus in services trade should help contain the current account deficit.
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S&P expects inflation to rise to 4.3% in fiscal 2027 as it normalizes from low levels.
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 many of the 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 $92 bbl in the June quarter and about $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 unfavorable scenario, where the energy market disruption is more pronounced and lasts longer, and the Brent crude oil price averaging $185 bbl in the June quarter, and averaging almost $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.
(With Inputs From PTI)
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