S&P Global Ratings on Wednesday raised India’s GDP growth forecast for FY27 to 7.1%, citing strong domestic demand drivers such as private consumption, investment recovery, and steady exports. However, the agency cautioned that persistent tensions in the Middle East could pressure the country’s fiscal position through higher energy prices. 

In its latest quarterly Asia-Pacific economic commentary, S&P said India’s economic outlook remains resilient, though global uncertainties, particularly geopolitical tensions and trade disruptions, pose downside risks via commodity price volatility, trade flows, and capital movements. 

“We project real GDP growth to moderate to 7.1% in the fiscal year ending March 2027, compared with 7.6% in fiscal 2026. Key drivers are resilient private consumption, a modest recovery in private investment, and solid exports,” the agency said. 

S&P also revised its FY26 growth estimate upward by 0.4 percentage points to 7.6%, and FY27 by 0.2 percentage points to 7.1%. 

Inflation may go up, limited fuel price pass-through expected 

The ratings agency expects inflation to rise to 4.3% in FY27 as price levels normalise from recent lows. While higher global crude prices may push up domestic fuel prices, it does not anticipate a full pass-through, as the government is likely to act to contain subsidy burdens. 

Elevated crude prices could widen India’s trade deficit, though a robust surplus in services exports is expected to help contain the current account deficit. 

RBI likely to hold rates steady for now 

S&P expects the Reserve Bank of India to maintain a neutral stance and keep interest rates unchanged under its baseline scenario, supported by manageable inflation and stable growth conditions. 

Middle East conflict poses wider risks 

The report highlighted that ongoing tensions in the Middle East could weigh on Asia-Pacific economies, many of which are heavily dependent on energy imports from the region. 

“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,” S&P noted. 

S&P’s baseline scenario assumes Brent crude will average $92 per barrel in the June quarter and around $80 per barrel in 2026. It also factors in temporary disruptions in the Strait of Hormuz until early April, with gradual normalisation thereafter. 

However, in a more adverse scenario involving prolonged and severe energy market disruptions, Brent crude could average as high as $185 per barrel in the June quarter and nearly $130 per barrel in 2026. 

In such a case, S&P said the central bank may be forced to tighten monetary policy to counter energy-driven inflation. “We would expect one 25 basis point rate hike in the second half,” the agency said, adding that the RBI would assess the persistence of inflationary pressures before taking action.