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S&P Global and Crisil’s ‘India Forward’ report warns India’s GDP growth will slow to 6.6% in FY27 from 7.6%.
This will happen as West Asia-driven energy shock lifts oil prices, fuels inflation to about 5.1% and weakens the rupee toward 93 per dollar.
Rising import bills, wider current account and fiscal deficits, and higher bond yields threaten momentum despite strong domestic demand.
India’s GDP growth is set to moderate to 6.6 per cent in the coming fiscal year (FY27), as persistent energy disruptions triggered by the West Asia conflict ripple through trade, inflation and financial conditions, according to the analysis India Forward from S&P Global and Crisil. The downgrade from earlier projections reflects a widening energy shock that is feeding into macroeconomic stress, even as domestic fundamentals remain relatively strong.
The latest assessment placed India’s growth below the 7.1 per cent estimate at the start of the year and sharply lower than the 7.6 per cent expansion recorded previously. The shift underscores how rising oil and gas prices, tighter financial conditions and supply disruptions are interacting in a non-linear way to slow economic momentum, the analysts wrote.
India’s annual GDP growth of 7.3 per cent between 2023 and 2026 was shaped by strong domestic demand and supportive policies. according to the analysis.
At the same time, inflation is projected to rise to about 5.1 per cent from an unusually low 2 per cent last year, reflecting second-round effects of higher energy, freight and input costs, it added. Economists cautioned that while inflation remains within the Reserve Bank of India’s tolerance band, risks are building as energy costs filter into core prices.
The authors of the report also noted that bond markets are adjusting to the new reality, with the benchmark 10-year government bond yield expected to settle around 7 per cent by the end of the fiscal year, while the rupee is projected to weaken toward 93 per dollar amid capital outflows and a widening current account deficit.
The energy crisis has emerged as the central transmission channel affecting India’s economic outlook, the report showed. Brent crude is expected to average close to $96 per barrel this fiscal year, with elevated levels persisting into the next, according to the analysis.
India’s exposure amplifies the shock, the experts wrote. West Asia accounts for 45 per cent to 50 per cent of crude oil imports and a significant share of gas and fertiliser supplies, making the economy particularly sensitive to disruptions in the region.
According to Dharmakirti Joshi, chief economist at Crisil, the conflict represents the most significant external shock in recent years, transmitting through higher import bills, weaker exports, currency volatility and rising production costs.
The current account deficit is expected to widen from around 0.8 per cent to roughly 2.2 per cent as energy imports rise and export growth slows, the analysts projected. This deterioration reflects both higher commodity prices and logistical disruptions, including freight costs that surged nearly 75 per cent month-on-month at the peak of the crisis, they noted.
The government has so far cushioned consumers from the full impact of rising energy prices through tax cuts, subsidies and export controls on refined fuels, the experts wrote in the report. These measures have helped smooth domestic fuel prices, limiting volatility seen in global markets, they added.
However, this strategy is beginning to strain public finances, their findings showed. Analysts expect upward pressure on the fiscal deficit as subsidy burdens rise faster than nominal GDP gains.
India’s fiscal consolidation path, which brought the deficit down significantly in recent years, is now under stress. Additional spending on food and energy security, including a Rs 1 lakh crore economic stabilisation fund for oil hedging, reflects a shift toward countercyclical fiscal support.
The government retains some flexibility by targeting debt-to-GDP over a multi-year horizon, allowing temporary slippage during crisis periods. But prolonged high energy prices could force difficult trade-offs between welfare support and capital expenditure, a key driver of recent growth.
The crisis is accelerating a structural rethink of India’s energy strategy. Policymakers and analysts increasingly frame the energy transition not just as a climate imperative but as a function of energy security.
India’s energy demand is expected to double over the next 25 years, intensifying the urgency of building a more resilient system. This includes diversifying supply sources, expanding domestic production and investing in renewables, storage and alternative fuels.
Gauri Jauhar, executive director at S&P Global Energy, argues that the transition will be shaped by the need for resilience, with coal and renewables both playing central roles given India’s domestic resource base.
At the same time, upstream vulnerabilities remain stark. India’s crude import dependence is projected to rise to about 94 per cent by 2030, with gas import dependence reaching 65 per cent. This has renewed focus on acquiring overseas energy assets and diversifying sourcing beyond traditional suppliers.
A less visible but rapidly emerging pressure point is the rise of data centers, driven by artificial intelligence and digital infrastructure expansion, the authors of the report warned.
India currently accounts for less than 2 per cent of global data center capacity, but allocated capacity is expected to expand sharply by 2030, potentially requiring up to 15 gigawatt (GW) of dedicated power, the data showed.
This demand is likely to reshape energy procurement strategies, with a mix of renewables and gas-based generation under consideration, the analysts wrote. Industry experts noted that stranded gas capacity could be repurposed to support this growth, aligning with global trends of co-locating energy supply with digital infrastructure.
The unfolding crisis is pushing India toward a dual strategy of self-sufficiency and diversification. Analysts highlighted three priority areas for policy action.
According to the report, energy security remains paramount, with calls to expand strategic petroleum reserves and build comprehensive energy storage systems. India currently has around 60 days of petroleum stock cover, but experts argue this is insufficient for prolonged disruptions.
Food security is another concern, given heavy reliance on imported fertiliser inputs. Any sustained disruption could affect agricultural output and inflation dynamics, the analysts said.
Joshi warned that the upcoming winter crop could be affected by limited fertiliser availability and the impact of El Nino, potentially fuelling food inflation. He said that while consumer price inflation has so far remained higher than wholesale price inflation, largely because consumer prices such as fuel and fertilisers have been contained, the Wholesale Price Index is now likely to outpace the Consumer Price Index.
Finally, structural reforms and trade diversification are seen as critical to sustaining growth. India’s push for new trade agreements and manufacturing competitiveness aims to offset a more fragmented global economy.
Deepa Kumar, head of Asia-Pacific country risk at S&P Global Market Intelligence, noted that the country’s policy approach is shifting from short-term risk management to long-term strategic resilience.