S&P Global Ratings projects India's economy to demonstrate remarkable resilience, forecasting a robust 6.3 per cent growth even if crude oil prices surge to an average of $130 per barrel in the current fiscal year, underscoring the nation's strong fiscal commitment amidst global uncertainties.
Key Points
- S&P Global Ratings forecasts India's economy to grow at 6.3 per cent in the current fiscal year, even if crude oil prices average $130 per barrel.
- The fiscal strain from potential energy price shocks is not expected to impact India's sovereign credit rating due to the government's commitment to fiscal consolidation.
- Under a baseline assumption of $85/barrel crude, India's growth is projected at 7.1 per cent in 2026-27, remaining the highest among major economies.
- India possesses significant fiscal flexibility, allowing the government to adjust spending in areas like infrastructure to meet fiscal deficit targets even if subsidy bills increase.
- Potential risks include energy supply disruptions leading to fuel rationing, weaker current account balance, higher production costs, and reduced consumer purchasing power.
S&P Global Ratings on Thursday said India is expected to grow at 6.3 per cent if the oil price averages $130/barrel in the current fiscal year amid the West Asia crisis.
It also said that the fiscal strain from the energy price shock is unlikely to impact India's sovereign credit rating, as India has the "political commitment to fiscal consolidation" over the long term.
Growth Projections Amidst Volatility
S&P Director, Sovereign and International Public Finance Ratings, Yee Farn Phua said considering a baseline assumption of crude at $85/barrel, India will grow 7.1 per cent in 2026-27.
"That's still a very strong number compared to any major economies out there.
"Even in the alternate scenario, if I were to say, $130/barrel average, we are still looking at the growth at 6.3 per cent... that is still going to be the highest among major economies," Phua said at a webinar.
Potential Risks and Fiscal Flexibility
S&P said energy supply disruptions that lead to fuel rationing or shortages of related products, such as fertilisers, would be a risk.
India, S&P said, could see a weaker current account balance, higher costs for producers squeezing margins, higher consumer prices reducing purchasing power, and fiscal strains, as the government steps in to cushion some of the shock for consumers.
"The government's fiscal consolidation efforts continue to be very strong... India has a lot of physical flexibility on the spending side, especially on infrastructure.
"So, in case some of the areas where they have to spend more, for example, the subsidy bill, they might cut in other places to make sure that they will still hit the fiscal deficit target," Phua added.
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