High oil prices could cut up to 80 bps from India growth, says S&P

S&P Global Ratings projects a moderate slowdown in India’s GDP growth, estimating a hit of up to 80 bps if oil averages around USD 130 / bbl this year, according to a note. Strong macroeconomic and financial sector parameters are likely to help the economy absorb the impact of sustained high oil prices without immediate financial instability.

Why it matters: “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 warned.

The mitigants: Despite these headwinds, S&P expects strong corporate balance sheets, well-capitalized banks, and a resilient external position to provide adequate buffers against the worst of the fallout. India’s economy entered 2026 with strong growth momentum, resilient domestic demand, and low inflation, which — combined with potential government support — should help absorb the near-term shocks.

The stress test: S&P assumes crude at USD 130 / bbl in 2026 and around USD 100 in 2027, versus a base case of USD 85 and USD 70. At these levels, sustained energy costs and supply disruptions are expected to weigh on demand and slow down economic activity.

Higher crude prices are expected to raise input costs, push retail prices up, and widen the current account deficit. S&P estimates that every USD 10 / bbl increase could expand the deficit by about 0.4 percentage points of GDP, while depreciating the INR.

Rating steady, but fiscal risks linger: The rating agency does not expect any immediate impact on India’s sovereign rating, though it cautioned that fiscal consolidation efforts could face temporary setbacks.

Inflation rose in March

India’s retail inflation inched up to 3.4% y-o-y in March from 3.21% in February, remaining below the Reserve Bank of India’s (RBI) 4% target, according to a press release. The uptick was driven by 3.8% food inflation in March versus 3.4% a month earlier.

Wholesale price inflation (WPI) rose to 3.8% y-o-y in March, its fastest pace in over three years, driven by higher prices of oil, food and manufactured products, according to government data. The WPI in February was 2.1%.