India GDP growth may slip to 6% in FY27 at $120 crude

What EY India flagged

EY India said India’s real GDP growth could slip to around 6% in FY27 if the Indian crude basket (ICB) averages $120 per barrel. The same scenario could push CPI inflation to 6%, which is the Reserve Bank of India’s (RBI) upper tolerance band. The assessment was shared on Wednesday by EY India Chief Policy Advisor DK Srivastava. The warning comes amid concerns that the West Asian crisis could keep energy prices elevated.

Why the crude basket assumption matters

India’s macro outlook remains sensitive to crude because higher oil prices typically flow through to transport, logistics, and input costs across sectors. EY’s scenario is built around the ICB averaging $120 a barrel through FY27. Srivastava also pointed to a likelihood of the ICB price exceeding $15 per barrel on average in FY27. That $15 reference matters because it suggests risks even without a full move to the $120 scenario.

Inflation risk: closer to the RBI’s ceiling

EY’s adverse scenario puts CPI inflation at 6%. That level is significant because it reaches the top of the RBI’s tolerance band, tightening the policy trade-off between supporting growth and containing prices. Srivastava said India’s growth could be lower than 6.5% and inflation somewhat higher than the RBI’s baseline projections if crude stays elevated. The underlying message is that energy costs can push inflation outcomes away from baseline assumptions.

Policy levers EY says may be considered

Srivastava said the room for policy intervention is limited, but policymakers may need to consider an upward revision in the repo rate. He also highlighted the need to accelerate diversification of crude supply sources, especially if the West Asian crisis persists. Separately, he suggested that to minimise the adverse impact on the fiscal deficit, increased energy prices should be passed on to retailers to a relatively larger extent. This points to a tighter balance between cushioning consumers and protecting public finances.

How FY27 projections compare across institutions

EY’s 6% growth estimate at $120 crude sits below several prominent FY27 forecasts cited in the report coverage. The IMF has projected India’s FY27 growth at 6.5%. The Asian Development Bank (ADB) and the World Bank expect growth of 6.9% and 6.6%, respectively. The RBI has projected FY27 growth at 6.9%, with inflation expected to average around 4.6%.

Other scenario estimates cited alongside EY

The coverage also cited scenario-based estimates from other forecasters. Care Ratings estimates that if global crude averages $10 per barrel for the full year, India’s FY27 GDP growth could moderate to 6.7%. This is a downward revision from its pre-conflict forecast of 7.2%, which assumed crude averaging $10 to $10 per barrel. In an extreme scenario where crude averages around $120 per barrel in FY27, Care Ratings sees annual GDP growth dropping below 6%.

Morgan Stanley’s stress case adds a higher-oil reference point

A Morgan Stanley report published on April 7 said India’s FY27 growth may slow to 5.7% if crude oil jumps to $150 a barrel for one quarter. Under that scenario, it said consumer inflation could rise above 6% and the current account deficit could widen to about 3% of GDP. Morgan Stanley also lowered its base-case FY27 growth forecast to 6.2% from 6.5% and raised its inflation estimate to 5.1%. That base case assumes Brent crude averages $15 a barrel.

Key numbers at a glance

What it means for markets and investors

The common thread across these estimates is that higher crude prices can weaken growth while keeping inflation elevated. For investors, that combination can influence expectations around interest rates, fiscal math, and sectors sensitive to fuel costs. EY’s note on passing through higher energy prices to retailers indicates potential pressure points for household inflation and consumption. At the same time, the emphasis on diversifying crude supply underscores that energy security remains a macro variable closely watched by markets.

Conclusion

EY’s $120-per-barrel ICB scenario puts India’s FY27 growth near 6% and CPI inflation at 6%, highlighting how energy shocks can tighten the policy trade-offs. Srivastava’s suggestions focus on rate considerations, supply diversification, and calibrated pass-through to limit fiscal stress. The next set of oil price moves and the persistence of the West Asian crisis will remain key variables for FY27 growth and inflation outcomes.