Renewed geopolitical tensions and persistent trade-related uncertainties could impact India through volatility in commodity prices, trade volumes and capital flows, said the rating agency in its latest quarterly Asia-Pacific economic outlook.
It also lifted its FY28 outlook by 0.2 percentage points to 7.2%. India’s gross domestic product (GDP) is expected to expand 7.6% in FY26, according to official estimates.
S&P Global Ratings noted that if global oil prices remain high, fuel prices in India are likely to rise to limit subsidy burdens, though a complete pass-through is unlikely. It added that a worsening energy scenario could also disrupt supply chains due to shortages of fuel and petroleum-based products.
Higher energy costs, the report said, would weaken purchasing power and dampen domestic demand. “In countries such as India, Indonesia, Japan, Malaysia, and Thailand, higher prices will force greater spending on subsidies and thereby strain fiscal positions,” it said.
The agency projects inflation to rise to 4.3% in FY27 as it normalises from low levels, with the central bank likely to keep interest rates unchanged while maintaining a neutral stance.
The monetary policy committee of the Reserve Bank of India is scheduled to meet early next week, after having held the benchmark repo rate unchanged at 5.25% in February.S&P warned that elevated crude prices could widen the trade deficit, although a healthy surplus in services trade should help contain the current account deficit.
It assumes Brent to average $92 per barrel in the June quarter and around $80 per barrel on average in 2026.
For the Asia-Pacific region, S&P raised its 2026 GDP growth forecast by 0.2 percentage points to 4.5%, citing continued support from technology-led exports and resilient domestic demand. However, it flagged growing risks from the Middle East conflict, higher energy costs, and evolving US trade policies.
In a more severe scenario, prolonged disruptions could push Brent crude prices to an average of $185 per barrel in the June quarter and nearly $130 per barrel in 2026.
S&P added that India’s central bank may tighten monetary policy in response to energy-driven inflation, after assessing its persistence. “We would expect one 25 bps rate hike in the second half,” it said.