India's GDP Growth Forecast and Inflation Concerns Amid Rising Crude Prices

Economic Outlook Amid Rising Crude Prices

According to EY India, India's GDP growth could decline to approximately 6% and retail inflation might reach the Reserve Bank of India's (RBI) upper tolerance limit of 6% in the current fiscal year if the average price of the Indian crude basket hits $120 per barrel. DK Srivastava, Chief Policy Advisor at EY India, emphasized that while options for policy adjustments are limited, it is crucial for policymakers to contemplate raising the repo rate and diversifying crude supply sources, especially if the crisis in West Asia continues.

Srivastava noted, "If the Indian crude basket price averages $120 per barrel in FY27, we could see real GDP growth drop to around 6% and CPI inflation rise to 6%. To mitigate the negative effects on the fiscal deficit, it is essential to pass increased energy costs on to retailers more significantly." The US Energy Information Administration's Short-Term Energy Outlook predicts that Brent crude oil prices will rise from an average of $81 per barrel in the first quarter of 2026 to a peak of $115 per barrel in the second quarter of 2026. However, future crude prices may decrease depending on the crisis's progression.

The International Monetary Fund (IMF) has estimated India's GDP growth at 6.5% for FY27, while the Asian Development Bank (ADB) and the World Bank project it at 6.9% and 6.6%, respectively. In its recent monetary policy review, the RBI forecasted GDP growth for FY27 at 6.9%, down from the 7.6% estimated for FY26, and anticipated an average inflation rate of 4.6% for FY27.

In the EY Economy Watch report, Srivastava indicated that the ongoing West Asian crisis may extend beyond initial expectations of a brief conflict. Even after resolution, it will take significant time for global crude supply to stabilize. He added, "As a result, India's growth may fall below 6.5%, and inflation could exceed the RBI's baseline estimates," suggesting that the Indian crude basket price might average over $95 per barrel in FY27. Nonetheless, he concluded that India's growth in FY27 is likely to be more than double that of global growth in a challenging scenario.