High crude oil prices may slow India's growth, spike inflation: Report

High crude oil prices from the West Asia conflict could slow India's GDP growth to 6.5% and push inflation above 5% if oil averages USD 100 per barrel, a CareEdge Ratings report warns. The report details escalating impacts on growth and prices.

India's economic growth could slow and inflation may rise if crude oil prices remain elevated amid the ongoing West Asia conflict, according to a report by CareEdge Ratings.

Projected Impact on GDP and Inflation

The report highlighted that if crude oil prices average around USD 100 per barrel, India's GDP growth for FY27 could decline to 6.5 per cent. At the same time, inflation is expected to rise above 5 per cent, reflecting the impact of higher energy costs on the economy.

The report noted that the growth outlook has been clouded by high energy prices and supply concerns due to the West Asia conflict. Under normal conditions, when crude prices were in the range of USD 60-70 per barrel, growth was estimated at 7.2 per cent. However, with rising oil prices, the base case estimate stands at 6.7 per cent at around USD 90 per barrel.

As crude prices increase further, growth is projected to slow progressively. At USD 110 per barrel, growth could decline to 6.1 per cent, while at USD 120 per barrel, it could fall below 6.0 per cent.

On the inflation front, the report stated that price pressures are also expected to rise with higher oil prices. When crude was at USD 60-70 per barrel, inflation was estimated at 4.3 per cent. In the base case scenario of USD 90 per barrel, inflation is projected at 4.5-4.7 per cent. However, if crude prices rise to USD 100 per barrel, inflation could increase to 5.1-5.3 per cent. At higher levels of USD 110 and USD 120 per barrel, inflation may rise further to 5.8-6.0 per cent and 6.4-6.6 per cent, respectively.

Sector-wise Impact Analysis

The report also analysed the impact of the West Asia conflict across various sectors.

High-Impact Sectors

Sectors such as airlines, petrochemicals, ceramics and glass are likely to face high impact with low resilience due to rising input costs and supply disruptions.

Other sectors including oil marketing companies, fertilisers, synthetic textiles, tyres, packaging and basmati rice exports are expected to face high impact but have moderate resilience.

Medium and Low-Impact Sectors

Sectors like gas distribution, cement, construction, auto, speciality chemicals, semiconductors, paints and hospitality fall in the medium impact category.

On the other hand, sectors such as upstream oil and gas, thermal and renewable power, pharmaceuticals, coal mining and shipping are expected to have a lower impact.

The report said that while India's economy continues to be supported by domestic demand, rising crude prices and supply disruptions remain key risks. Higher oil prices increase input costs, push up inflation and can reduce consumption demand, thereby affecting overall growth. (ANI)

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