India's GDP Growth Outlook Revised Down Amid Rising Oil Prices, S&P Global Predicts

India's Economic Growth at Risk Due to Severe Energy Shock Scenario

India's economic growth could slow by as much as 0.8 percentage points in fiscal 2027 if crude oil prices average $130 per barrel in 2026, according to S&P Global Ratings. The global ratings agency has outlined a severe energy shock scenario linked to the Middle East conflict, which could impact the country's GDP growth.

Under this scenario, India's GDP growth could fall from its base-case estimate of 7.1 percent for FY27 if higher oil prices and supply disruptions persist for months. The agency's stress scenario assumes oil prices average $130 per barrel in 2026 and around $100 per barrel in 2027, compared with its base case of $85 per barrel for the rest of 2026 and $70 in 2027.

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Elevated energy costs would weigh heavily on households, companies, and banks, while also complicating the government's fiscal consolidation path. However, S&P noted that any deterioration in public finances due to measures aimed at cushioning consumers from fuel price shocks would likely be temporary.

Despite the downside risks, India's macroeconomic and financial fundamentals remain strong enough to absorb the shock, and S&P does not expect any immediate impact on the credit quality of the sovereign, banks, or rated corporates. However, for companies, S&P estimated EBITDA of the top 100 listed firms could decline by up to 25 percent from previous expectations, while leverage, measured by debt-to-EBITDA, could double in FY27.

Corporate credit quality could recover sharply in FY28, assuming energy prices remain elevated but lower than in the stressed 2026 scenario. On the banking sector, S&P said lenders enter the period of uncertainty from a position of strength, supported by decade-high capital adequacy and multi-year low non-performing loans. Credit losses may edge up to 0.9 percent over the next 12-24 months, but overall asset quality is expected to remain healthy.

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S&P's base case assumes the intensity of the conflict will peak soon and disruption linked to the Strait of Hormuz will ease during April, though some supply-side stress may continue for months. Brent crude crossed $100 per barrel as talks between the US and Iran failed, and the US announced a blockade of the Strait of Hormuz.