FY27 Indian growth to be 6.7% if avg crude price $90/bbl: Care Ratings

This is a downward revision from its pre-conflict growth forecast of 7.2 per cent for the fiscal, assuming crude oil averaging between $60 and $70 per barrel.

If global crude oil prices average at $90 per barrel for the full year, Care Ratings estimates India’s GDP growth to moderate to 6.7 per cent in FY27.
This is a downward revision from its pre-conflict growth forecast of 7.2 per cent, assuming crude oil averaging $60-$70 per barrel.
If crude oil prices average around $120 per barrel in FY27, it sees India’s annual GDP growth dropping below 6 per cent.

Downside risks to India’s growth outlook persist, given the possibility of a prolonged war situation and higher energy prices, the rating agency notes in a release.

In an extreme case scenario where global crude oil prices average around $120 per barrel in FY27, it sees India’s annual GDP growth dropping below 6 per cent.

Furthermore, the ongoing global headwinds also draw attention to India’s external sector vulnerabilities given its high energy import dependence, export and remittance exposure to the Middle East region and moderating capital flows.

Several other Asian economies like South Korea, Japan and China are vulnerable due to their relatively high energy imports from the Middle East. India’s total oil and gas import dependency is estimated to be around 4.2 per cent of its GDP (2024). Of this, reliance on the Middle East is estimated at about 2 per cent.

As India is dependent on imports to meet about 88 per cent of its total oil requirements and 51 per cent of its gas requirements, India’s consumer price index-based (CPI) inflation has become more sensitive to retail energy prices under the new series, with the combined weight of diesel, petrol, and LNG rising to 4.8 per cent from 2.4 per cent earlier, notes Care Ratings.

Assuming a full pass-through, a $10 increase in crude oil prices can lead to an estimated 55-60 basis points (bps) rise in headline inflation, with around 45 bps stemming from the direct effects and 10-15 bps from the indirect effects.

However, in the current scenario, the indirect inflationary pressures could be higher, given the risks of potential supply disruptions.

Overall, assuming global crude oil prices average at $90 per barrel in FY27, India’s CPI inflation is projected to average between 4.5-4.7 per cent—an upward revision from the earlier 4.3 per cent, which factored global crude oil prices ranging between $60 and $70 per barrel.

The revised inflation projection assumes that a large burden of the higher global crude oil prices will be borne by the government and oil marketing companies. Care Ratings has based its projection on the expectation that the these companies may be able to absorb an increase in Brent crude oil prices up to $106 per barrel.

A preliminary analysis by the rating agency suggests that the Indian government’s tax collections in FY27 could be lower by about ₹400 billion.

Overall, it estimates the fiscal burden from the excise duty cut on petroleum products, along with the possibility of an increase in fertiliser and fuel subsidy burden and lower tax revenue collections, to be around 0.5 per cent of GDP in FY27.

However, the government’s Economic Stabilisation Fund should provide some buffer to address rising fiscal pressures, it adds.

Fibre2Fashion News Desk (DS)