India's CPI inflation expected to rise to 4.8% with crude oil averaging $90/bbl in FY27: Report

India's inflation rate is expected to climb significantly, reaching 4.8% in the fiscal year 2027, according to a report by 360 ONE Capital. This projection hinges on crude oil averaging $90 per barrel and reflects growing concerns over macroeconomic stability. The report highlights that the ongoing conflict in West Asia and a less optimistic domestic monsoon forecast are introducing fresh challenges to India's economic trajectory.

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Our revised base case assumes de-escalation by mid-June, with crude oil averaging USD 90/bbl in FY27. Under this scenario, CPI inflation is expected to rise by around 70 bps to 4.8% (from 4.1%), while GDP growth moderates to 6.3% (from 6.7%). The fiscal deficit is projected to widen to 4.6% of GDP (from 4.4%), and the current account deficit to 2.1% of GDP (from 1.3%).

The report emphasizes that the West Asia conflict and potential energy supply disruptions necessitate a reassessment of key economic assumptions. In its revised base case, which assumes de-escalation by mid-June and crude oil at $90/bbl for FY27, the firm forecasts a 70 basis point rise in CPI inflation from 4.1%. Consequently, GDP growth is expected to moderate to 6.3% from 6.7%, the fiscal deficit to widen to 4.6% of GDP, and the current account deficit to 2.1% of GDP. While domestic consumption and public spending are supporting economic momentum, geopolitical frictions present tangible downside risks, particularly concerning vital supply routes like the Strait of Hormuz.

Compounding these external risks, India's agricultural outlook faces pressure from a downgraded monsoon forecast. The India Meteorological Department (IMD) has lowered its Southwest Monsoon 2026 forecast to 90% of the Long Period Average, marking the weakest outlook since 2015. This raises immediate concerns for agricultural output and rural demand. Globally, the IMF has also reduced its 2026 global growth forecast, citing risks from the Middle East conflict, including higher commodity prices, inflation, and tighter financial conditions.

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A further USD 10/bbl increase in crude prices above our base assumption could push inflation to 5.6% (assuming a partial pass-through of around 5% to retail fuel prices), lower GDP growth by an additional 40 bps to 5.9%, widen the current account deficit to 2.5% GDP, and increase the fiscal deficit to 4.8% of GDP.

The report warns that the impact of these factors could be non-linear, with significantly larger downside risks if the conflict persists. A further $10/bbl increase in crude prices could push inflation to 5.6%, lower GDP growth by an additional 40 basis points to 5.9%, and widen both the current account and fiscal deficits. On the monetary front, global central banks are reacting to persistent inflation, leading to tighter financial conditions. While the Reserve Bank of India is expected to maintain policy rates, domestic bond yields may face upward pressure due to the widening fiscal deficit and increased energy costs.

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global growth is projected at 3.1% in 2026 and 3.2% in 2027