India's Economic Growth Could Slow By 0.8% Points In Fiscal 2027: S&P Ratings

New Delhi: Global rating giant S&P Global Ratings on Tuesday said that 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 under a severe energy shock scenario linked to the Middle East conflict. However, the country’s robust macroeconomic and financial sector fundamentals are likely to cushion the impact of a sustained oil price shock.

The ratings agency further said that if higher oil prices and supply disruptions persist for months, India’s GDP growth could fall from its base-case estimate of 7.1 percent for FY27. “Under this stress scenario, corporate earnings before interest, tax, depreciation and amortisation (EBITDA) could decline 15-25 per cent in FY27, with leverage rising by 0.5x-1x, while banking sector asset quality may weaken, pushing bad loans to around 3.5 per cent,” it said.

The agency, however, assumed that oil prices could be on 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. “India isn't immune to the shocks reverberating from the Middle East war. The pain of higher energy prices and supply disruptions may persist for months, crimping economic activity across households, corporations, and banks,” the rating agency said in a report.

The agency also warned that an energy shock would transmit through higher input costs, squeezed corporate margins, rising consumer prices and increased fiscal strain if the government steps in with subsidies. “The growth could also be hit by potential supply disruptions affecting fuel and petrochemicals. Despite these risks, India's economy entered 2026 with strong growth momentum, resilient domestic demand and low inflation, which should help absorb near-term shocks,” the report said.

On the growth front, the agency also indicated that higher oil prices could widen the current account deficit, with estimates suggesting a $10 per barrel increase may expand the gap by about 0.4 percentage points of GDP. “The rupee could also face depreciation pressures amid risk-off sentiment and a rising import bill,” it said.

The rating agency also said that India’s strong domestic fundamentals, potential government support, and significant improvement in corporate and banking sector health over the past few years would mitigate the severity of any shock. “Robust corporate balance sheets provide a cushion against higher energy prices. Banks, meanwhile, have strong capital and profitability,” it said.

“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,” it said in its report.