BY COMFORT OGBONNA
Goldman Sachs has lowered its growth forecast for India’s economy in 2026 and now expects the country’s central bank to raise interest rates as policymakers grapple with a weakening currency, rising inflation risks, and higher global oil prices.
In its latest outlook released Tuesday, the Wall Street investment bank projected that India’s economy will expand by 5.9% in the 2026 calendar year. The revised estimate marks a significant downgrade from the firm’s earlier projection of 7%, reflecting increasing concerns over global energy disruptions and their impact on the South Asian economy.
The adjustment also follows an earlier revision earlier in March when analysts had already reduced their growth forecast to 6.5%. The latest downgrade signals that economists believe the challenges facing India’s economy have intensified in recent weeks.
Analysts pointed to rising crude oil prices and disruptions to global supply routes as key factors behind the weaker growth outlook. India is one of the world’s largest importers of energy, making its economy particularly sensitive to shifts in global oil markets.
Higher energy prices can ripple across the broader economy by increasing the cost of transportation, manufacturing, and electricity, ultimately pushing up inflation and weakening consumer purchasing power. They also place pressure on the country’s external balances because India relies heavily on imported fuel to meet domestic demand.
The analysts said their revised outlook is based partly on updated expectations for supply disruptions linked to tensions affecting shipments through the Strait of Hormuz, one of the world’s most critical oil transit routes. The bank now expects the near-shutdown of flows through the waterway to continue until mid-April before gradually easing over the following month.
Under this scenario, Brent crude oil prices are expected to remain elevated in the near term. The bank forecasts that Brent will average around $105 per barrel in March and climb to about $115 per barrel in April before gradually retreating later in the year. Prices are expected to ease significantly toward the end of the year, potentially averaging about $80 per barrel during the fourth quarter as supply conditions normalize.
Despite the expected moderation in oil prices later in the year, the period of elevated costs could still have lasting effects on India’s economic conditions, particularly through inflation and currency movements.
The analysts now expect India’s inflation rate to average around 4.6% in 2026, up from their previous forecast of 3.9%. Although this level would remain within the Reserve Bank of India’s official tolerance band of 2% to 6%, the bank believes policymakers could still be forced to tighten monetary policy to stabilize the currency and prevent broader price pressures.
As a result, the report forecasts that India’s central bank could raise its benchmark policy repo rate by 50 basis points in response to the pressures stemming from a depreciating currency and rising import costs.
The Indian rupee has already weakened notably this year. The currency has fallen roughly 4% against the U.S. dollar so far in 2026 after declining about 4.7% in 2025. Continued depreciation could increase the cost of imported goods and energy, adding another layer of inflation risk for households and businesses.
Analysts noted that when a country’s currency weakens, the higher cost of imports can quickly pass through to domestic retail prices. In India’s case, the impact could be particularly noticeable because of the economy’s heavy reliance on imported fuel and industrial inputs.
The report also warned that India’s current account deficit may widen as a result of higher import costs and energy prices. The deficit — a key measure of the gap between the country’s imports and exports — could reach about 2% of gross domestic product in 2026.
A widening deficit can increase a country’s vulnerability to external financial shocks and put additional downward pressure on its currency if foreign investment flows slow or global financial conditions tighten.
For comparison, India’s current account deficit stood at 1.3% of GDP during the October to December quarter of 2025. A rise to 2% would signal a notable deterioration in the country’s external balance.
Even with these challenges, economists note that India’s growth rate would still remain among the strongest among major global economies. However, the combination of higher energy prices, currency weakness, and tighter financial conditions may limit the pace of expansion in the near term and increase the need for policy responses from both fiscal and monetary authorities.
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