India’s CPI inflation is projected to rise next year as higher crude oil prices, fragile global growth and weaker monsoon expectations combine to pressure the macroeconomic outlook, according to a new assessment by 360 ONE Capital that also flags wider fiscal and external deficits for FY27.
The report links the softer outlook mainly to the conflict in West Asia and a downgraded Southwest Monsoon 2026 forecast, which together threaten energy supplies, farm output and rural demand. It notes that India’s domestic demand and government spending still support growth, but new risks are building around inflation, trade balances and public finances.
India CPI inflation outlook under higher crude oil and conflict risks
The report’s revised base case assumes geopolitical tensions in West Asia cool by mid-June, yet crude oil averages USD 90/bbl in FY27. Under these conditions, 360 ONE Capital expects India’s CPI inflation to increase by about 70 basis points to 4.8 per cent, up from an earlier projection of 4.1 per cent.
The same scenario points to slower real activity. The report now sees GDP growth easing to 6.3 per cent in FY27, compared with a previous estimate of 6.7 per cent. It also warns that the fiscal deficit could widen to 4.6 per cent of GDP instead of 4.4 per cent, and that the current account deficit may stretch to 2.1 per cent of GDP from 1.3 per cent.
India CPI inflation risks from crude oil supply routes and energy exposure
360 ONE Capital underlines that India’s economic momentum, built on private consumption and public investment, remains stable for now. However, it stresses that supply routes through the Strait of Hormuz are critical, since India sources nearly 50 per cent of LPG and around 30 per cent of natural gas needs through this corridor, leaving the economy vulnerable to any long disruption.
The report highlights that the “net petroleum import bill has declined from 5.5% of GDP in FY14 to around 3.0% in FY25, the economy remains exposed to a prolonged disruption in energy supplies.” It cautions that any sustained blockage would quickly spill over into domestic prices, growth and external balances.
India CPI inflation, monetary policy and non-linear downside scenarios
On the policy side, the report observes that global financial conditions remain tight, as central banks respond to persistent price pressures. It expects the Reserve Bank of India to keep policy rates unchanged at the upcoming meeting, yet notes that government bond yields in India are likely to face upward pressure from rising energy costs and a higher fiscal deficit.
The report also stresses that the macro impact of the conflict could be non-linear, meaning the damage might rise more than proportionately if tensions last. It states, “A further USD 10/bbl increase in crude prices above our base assumption could push inflation to 5.6% (assuming a partial pass-through of around 5% to retail fuel prices), lower GDP growth by an additional 40 bps to 5.9%, widen the current account deficit to 2.5% GDP, and increase the fiscal deficit to 4.8% of GDP.”
| Indicator | Earlier estimate | Revised base case FY27 | Adverse crude oil scenario |
|---|---|---|---|
| CPI inflation | 4.1% | 4.8% | 5.6% |
| GDP growth | 6.7% | 6.3% | 5.9% |
| Fiscal deficit (% of GDP) | 4.4% | 4.6% | 4.8% |
| Current account deficit (% of GDP) | 1.3% | 2.1% | 2.5% |
India CPI inflation, weaker monsoon outlook and global growth backdrop
Domestic weather trends add another layer of concern. In its Second Long Range Forecast, the IMD cut its Southwest Monsoon 2026 projection to 90 per cent of the Long Period Average, down from 92 per cent in April. This is the weakest official monsoon outlook since 2015 and raises alarms about crop yields, farm incomes and rural spending.
Globally, the report notes that the IMF has trimmed its 2026 world growth forecast by 20 basis points, citing risks from the Middle East conflict through higher commodity prices, stickier inflation and tighter financial conditions. Under the IMF’s reference case, “global growth is projected at 3.1% in 2026 and 3.2% in 2027, below both the recent 3.4% pace and the historical average of 3.7%. In adverse scenarios, growth could slow to 2.5% or even 2.0%, accompanied by significantly higher inflation, with emerging markets expected to be disproportionately affected.”
360 ONE Capital’s analysis suggests that India enters FY27 with relatively firm domestic demand but must navigate higher crude oil, India’s CPI inflation risks, weaker monsoon prospects and a softer global backdrop, which together could weigh on growth while straining fiscal and external balances.