Energy shock strains India’s growth, fiscal outlook: S&P report
It was noted that the shock can support long-term growth by serving as an opportunity to overcome short-term bottlenecks and remove obstacles.
Crisil chief economist DK Joshi said rising bond yields, high inflation and a weakening rupee were weighing on growth as the conflict dragged on for more than two months.
According to Crisil, India’s gross domestic product (GDP) growth is expected to slow down to 6.6% in FY27 from 7.1% estimated earlier.
According to official estimates, GDP growth for FY26 is estimated at 7.6%.
Describing the conflict as the biggest energy shock in history, the report said it tested India’s resilience, which was reflected in transportation and insurance costs, supply chains and fertilizers.
India imports 45-50% of its crude oil from the Middle East. Joshi outlined India’s three policy priorities going forward: energy security, food security and economic reforms. He emphasized that regulatory measures and structural changes will play a key role in improving the business environment and strengthening India’s attractiveness as an investment destination.
“We may face winter crop (fertilizer) shortage if the crisis continues, but we are in a pretty good position in terms of summer crop,” Joshi said.
fiscal consolidation
India’s post-Covid fiscal consolidation, which reduced its fiscal deficit from 9.2% of GDP in FY21 to 4.4% in FY26, now faces the toughest challenge, the report said.
India’s debt-to-GDP ratio is projected to rise to 57.5% from 56.1% in FY26, delaying the target of 49-51% in FY31.
Since the conflict began, the government has rationalized its allocation of cooking gas, resumed purchases of crude oil from Russia, and announced fuel and fertilizer subsidies and excise tax cuts on gasoline and diesel.
To achieve the target, the government may need to reduce infrastructure-related capital expenditure, which has been a key driver of growth in recent years, said Deepa Kumar, head of Asia-Pacific country risk at S&P Global Market Intelligence.
He also emphasized that India’s self-sufficiency is vital to spread risks among suppliers and enable deeper manufacturing ecosystems. It is also important to diversify energy sources or fertilizers.
Joshi said higher global crude prices will impact wholesale inflation through imported goods and raw materials more significantly than retail inflation as the government keeps pump prices constant. In March, wholesale and retail inflation were 3.9% and 3.4%, respectively.
The report also emphasized that the current energy crisis underlines the need for a reliable and resilient energy system.
