Standard Chartered has revised India’s macroeconomic forecasts, citing the ongoing Middle East conflict and the likelihood of a prolonged phase of elevated energy prices. In its latest report, the bank warned that high crude prices and potential supply disruptions could weigh on growth, inflation, and fiscal dynamics in FY27 (year ending March 2027). 

While domestic macro stability remains relatively intact, the report flagged rising concerns over the external sector if energy prices stay elevated for an extended period. 

GDP growth outlook lowered for FY26, FY27 

The bank has cut India GDP growth forecast for FY27 to 6.4% from 7%, and for FY26 to 7.3% from 7.6%, reflecting the anticipated drag from higher energy costs.  

It outlined three key transmission channels through which elevated energy prices could impact the economy; 1. Erosion of purchasing power due to higher retail fuel prices, 2. Widening current account deficit amid weaker exports, particularly to the Middle East, which accounts for 14% of India’s export, and 3. Supply-side disruptions, especially of critical inputs like cooking gas, affecting manufacturing and services such as restaurants. 

External sector risks in focus 

The report highlighted that disruptions such as the closure of the Strait of Hormuz could significantly impact trade flows and worsen the current account balance, amplifying pressure on the rupee. 

Additionally, reduced availability of cooking gas has already begun affecting small and medium enterprises. Sectors like hotels and restaurants, contributing nearly 1% of gross value added, are seeing operational challenges due to supply constraints. 

Inflation manageable, but rate risks remain 

Despite the risks, Standard Chartered expects inflation to remain within the Reserve Bank of India’s mandated 2–6% target band, allowing the Monetary Policy Committee to maintain a pause in rates. 

However, it cautioned that a sustained surge in crude oil prices, particularly above $100 per barrel, could trigger a 25–50 basis points hike in the repo rate if global interest rates harden and exert additional pressure on the rupee. 

The bank currently assumes an average crude oil price of $90–95 per barrel for FY27. 

Energy price shock may dent growth 

According to RBI estimates cited in the report, every 10% increase in crude oil prices reduces economic growth by 15 basis points. Factoring in an estimated 30% rise in crude prices versus earlier assumptions, the report projects a meaningful hit to FY27 growth. 

While retail fuel price increases have been limited so far, mainly in cooking gas and aviation turbine fuel, the bank expects a 5% hike in retail fuel prices in May and June 2026, followed by a partial rollback in the third quarter of FY27, assuming some easing in global crude prices.