Every $10 increase in crude oil may impact 0.4 percentage points of India’s GDP: S&P Global

India’s economic growth could slow by up to 80 basis points if crude averages $130 per barrel in 2026, said S&P Global Ratings on Tuesday. 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, it said.

“India isn’t immune to the shocks reverberating from the West Asia war. The pain of higher energy prices and supply disruptions may persist for months, crimping economic activity across households, corporations, and banks,” S&P Global Ratings said in a report.

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The report assumes Brent crude at $130 per barrel in 2026 and $100 in 2027 under the stress case, versus a base case of $85 and $70, respectively. It does not expect any immediate impact on India’s sovereign rating, though fiscal consolidation efforts could face temporary setbacks.

S&P said 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.

Under its 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.

Strong corporate balance sheets, well-capitalised banks and a resilient external position provide buffers against the impact, S&P said.

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. 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, it said.

S&P Global Ratings said India can weather a few months of elevated oil prices and supply disruptions, though a prolonged shock would pose broader risks to growth, fiscal stability and external balances.

Asian Development Outlook report, ADB said the GDP expansion to moderate to 5.1% this year from 5.4% in 2025.

The report’s projections were finalised more than a week into the Iran war, and assume a scenario where oil prices will gradually normalise and move towards pre-war levels by year-end. The situation remains volatile, with oil prices whipsawing on daily developments in the conflict.

Recently, Asian Development Bank (ADB) had said India’s economic growth to decline to 6.9% in 2026 from last year’s 7.6% while China’s growth will ease to 4.6% this year from 5% in 2025.