S&P Global Ratings has increased India’s gross domestic product (GDP) growth rate estimate to 7.1 percent for the upcoming financial year 2026-27. The rating agency said that private consumption, investment and exports will be the main drivers of growth. However, the ongoing conflict in West Asia may put pressure on the financial situation due to increase in energy prices. In its latest quarterly report on the Asia-Pacific region, S&P said the risks of new geopolitical tensions and persistent trade uncertainty could impact India through fluctuations in commodity prices, trade volumes and capital flows. The report said that if crude oil prices remain high, fuel prices in India may increase, so that subsidy costs can be controlled. However, the full effect of the prices is not likely to reach the consumers.
What will be India’s growth?
S&P said that we estimate that real GDP growth will be 7.1 percent in the financial year ending March 31, 2027, while it is estimated to be 7.6 percent in the financial year 2025-26. Strong private consumption, moderate improvement in private investment and solid exports will be its main drivers. The agency has raised the growth forecast for 2025-26 by 0.4 percentage points to 7.6 percent and for 2026-27 by 0.2 percentage points to 7.1 percent. According to S&P, with inflation coming back to normal from low levels, it is expected to increase to 4.3 percent in the financial year 2026-27. Higher crude oil prices are expected to widen the trade deficit, although a strong surplus in services trade will help keep the current account deficit limited. The agency estimates that the Reserve Bank of India (RBI) will keep the policy rates stable for the time being and maintain its neutral stance.
Estimate of higher expenditure on subsidy
The report said that the conflict in West Asia will affect the economies of the Asia-Pacific region because many of these countries are large importers of energy and are largely dependent on supplies from West Asia. S&P said higher energy prices reduce purchasing power and weaken domestic demand. Due to high prices in countries like India, Indonesia, Japan, Malaysia and Thailand, they may have to spend more on subsidies, which will increase pressure on the financial situation. According to the agency’s basic estimate, the average price of Brent crude oil is expected to be $ 92 per barrel in the April-June quarter and around $ 80 per barrel in 2026.
Will interest rates increase?
This has been estimated on the basis that the supply disruption in the Strait of Hormuz will last till the beginning of April and the situation will gradually return to normal after that. In the worst case scenario, however, the energy market disruption is more severe and lasts longer. Also, if Brent crude oil reaches an average of $ 185 per barrel in the June quarter and around $ 130 per barrel in 2026, then RBI can tighten policy after assessing the inflation arising from energy prices in India. According to S&P, in such a situation the interest rate can be increased by 0.25 percent in the second half of the year.