India is well-prepared to manage a significant energy shock, as per a report by S&P Global Ratings. The country’s strong domestic fundamentals, potential government support, and improved corporate and banking sector health in recent years provide a solid foundation. The report highlights that India’s robust external position can help absorb shocks from higher import bills, with no immediate downgrades expected for sovereign, corporate, and bank ratings due to the West Asian conflict.
Under a stress scenario with oil averaging $130 per barrel in 2026, growth could slow by up to 80 basis points from the base case, impacting the government’s fiscal position temporarily. The corporate sector may see a 15%-25% easing in EBITDA, with leverage increasing by about 0.5x-1x EBITDA in fiscal 2027. Additionally, the banking system’s asset quality may deteriorate, with weak loans rising to 3.5%.
Neel Gopalakrishnan, an analyst at S&P Global Ratings, anticipates a sharp credit quality recovery in fiscal 2028, driven by relatively lower energy prices. The agency projects strong performances for India’s corporations and banks in fiscal 2026, emphasizing the need to monitor any changes in capital expenditure plans in the industrial sector.
The Reserve Bank of India has imposed a $100 million cap on net open positions for banks to manage volatility and rupee pressure, affecting foreign exchange income. Despite potential higher fiscal deficits due to government measures to address energy prices, India’s commitment to fiscal consolidation remains intact over the coming years.
