New Delhi, Apr 15 (KNN) India’s macroeconomic and financial sector fundamentals are well placed to absorb the impact of a potential oil price shock, although economic growth could moderate under a sustained high crude price scenario, according to S&P Global Ratings.
Growth May Slow Under High Crude Scenario
In its latest assessment, S&P said that if crude oil prices average around USD 130 per barrel in 2026 and USD 100 per barrel in 2027, GDP growth could slow by up to 80 basis points from its baseline estimate of 7.1 percent for FY2026–27.
The agency noted that higher energy prices and supply disruptions linked to the ongoing West Asia conflict could weigh on economic activity across households, corporates and banks. However, it emphasised that strong domestic fundamentals would help cushion the overall impact.
“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,” the report said, adding that robust corporate balance sheets, well-capitalised banks and a resilient external position provide key buffers.
S&P’s stress scenario assumes a sharp deviation from its base case of USD 85 per barrel for 2026 and USD 70 for 2027. It also indicated that government measures to mitigate the impact of rising energy prices may temporarily strain fiscal balances, though they are unlikely to derail the broader fiscal consolidation path.
Sectors Impacted
On the corporate front, earnings before interest, tax, depreciation and amortisation (EBITDA) of the top listed firms could decline by 15–25 percent in FY2026–27, with leverage rising by 0.5 to 1.0 times. “Credit quality should recover sharply in fiscal 2028, assuming relatively lower energy prices,” said Neel Gopalakrishnan, analyst at S&P Global.
The banking sector is expected to remain resilient, supported by strong capital buffers and improved asset quality. However, S&P cautioned that bad loans could inch up to around 3.5 percent, while credit costs and profitability may come under pressure in the near term.
Higher oil prices are also likely to widen India’s current account deficit, with estimates suggesting that a USD 10 per barrel increase in crude could expand the deficit by around 0.4 percentage points of GDP. The rupee may face depreciation pressures amid rising import bills and global risk aversion.
Sectorally, industries such as chemicals, refining and aviation are seen as more vulnerable to rising input costs, while infrastructure and utilities are expected to remain relatively stable.
No Immediate Impact on Sovereign Rating
Despite these risks, S&P said India’s strong growth momentum, resilient domestic demand and relatively low inflation entering 2026 would help absorb short-term shocks. It also does not expect any immediate impact on India’s sovereign rating.
Overall, while a prolonged oil shock could pose risks to growth, fiscal stability and external balances, India is expected to remain relatively resilient, supported by improved corporate and banking sector health and policy support mechanisms.
(KNN Bureau)
2012-01-26
