S&P Global Ratings has projected that India's economic growth will slow to 6.6% in the fiscal year ending March 2027 from an estimated 7.7% in FY25-26, citing rising energy costs, expectations of a below-normal monsoon and slowing global growth.
The report comes at a time when economies across the Asia-Pacific region are grappling with elevated oil prices linked to tensions in the Middle East, while simultaneously benefiting from a boom in artificial intelligence (AI)-driven technology exports.
India Faces Energy-led Growth Headwinds
Unlike economies such as Taiwan, South Korea and Vietnam, which are benefiting significantly from the global surge in demand for AI-related technology products, India is among the countries where the adverse impact of higher energy prices outweighs the gains from the technology export boom.
S&P said it has revised down its growth outlook for India since late 2025 as energy stress becomes a more dominant factor in shaping the country's economic prospects.
"We project real GDP growth will slow to 6.6% in the fiscal year ending in March 2027, compared with 7.7% in fiscal 2026, amid the energy stress, expectations of a sub-par monsoon, and slowing global growth," the report said.
The ratings agency noted that higher energy prices are eroding purchasing power, increasing business costs and dampening domestic demand across several Asia-Pacific economies, including India.
Inflation Expected To Rise
S&P expects consumer inflation in India to increase to 5.1% during the current fiscal year as businesses pass on higher energy costs to consumers.
According to the report, inflationary pressures are likely to be driven not only by rising global energy prices but also by increases in administered prices such as petrol, diesel and cooking gas.
"We project consumer inflation will rise to 5.1% this fiscal year as manufacturers pass on higher energy costs to consumers, alongside recent increases in administered prices such as petrol, diesel, and cooking gas," S&P said.
The report added that persistent inflation could prompt monetary tightening by the Reserve Bank of India (RBI).
Rate Hike Likely in Second Half
S&P expects Indian authorities to respond to inflationary pressures and currency weakness with policy measures, including a potential increase in interest rates during the second half of the fiscal year.
The ratings agency said the current account deficit has widened amid rising energy import costs, while the rupee has come under pressure due to higher import bills.
To support the currency, authorities have already taken measures to encourage foreign capital inflows, which have helped stabilise the rupee to some extent against the US dollar, the report noted.
However, S&P believes further policy action may be required if inflation remains elevated.
Asia-Pacific Outlook Diverges
The report highlights a growing divergence across Asia-Pacific economies, with countries exposed to the AI-driven technology export boom outperforming those more vulnerable to energy price shocks.
Taiwan, South Korea and Vietnam are among the biggest beneficiaries of surging demand for semiconductors, memory chips and other AI-related technology products. Singapore, Malaysia, Thailand, Japan and China are also gaining from the trend.
In contrast, India, Japan, New Zealand and the Philippines have seen downward revisions to their growth forecasts because of the economic impact of higher energy prices.
Despite these challenges, S&P maintained its overall growth forecast for Asia-Pacific excluding China at 4.5% for 2026 and 4.4% for 2027.
Risks from Oil Prices and Middle East Tensions
The report cautioned that the outlook remains highly uncertain because of ongoing geopolitical tensions in the Middle East and the potential impact on global energy supplies.
S&P's baseline scenario assumes that disruptions in the Strait of Hormuz gradually ease during the second half of 2026, allowing oil prices to moderate over time before returning to pre-crisis levels in early 2028.
However, the agency also modelled a downside scenario in which restrictions on energy supplies from the Middle East persist for longer.
Under such a scenario, average oil prices would be around 20% higher than S&P's baseline forecast, leading to weaker economic growth and higher inflation across Asia.
For India, the impact could be significant. The ratings agency estimates that consumer inflation would rise by an additional 0.3 to 0.4 percentage points on average during 2026, while economic growth would be lower by about 0.5 to 0.6 percentage points.
India Still among Fastest-growing Economies
Despite the projected slowdown, India's forecast growth rate of 6.6% remains well above those of most major economies globally and ahead of many Asia-Pacific peers.
S&P said Asia-Pacific growth remains broadly resilient, supported by strong global demand for AI-related technologies and relatively stable domestic demand in several economies.
However, it warned that setbacks in energy market normalisation, coupled with the possibility of additional US trade tariffs and shifts in AI investment spending, could alter the outlook for the region.
For India, the trajectory of oil prices, monsoon performance and inflation will remain key factors determining whether growth can sustain momentum through FY26-27.
