NEW DELHI: As oil prices ease following a peace deal between the United States (US) and Iran, Goldman Sachs raised its forecast for India’s gross domestic product (GDP) growth in 2026-27 (FY27) by 40 basis points (bps) to 6.5 per cent. The global brokerage firm also cut its projection for India’s headline inflation by 30 bps to 4.9 per cent for FY27.
“Combined with our commodities team’s downward revision to the oil price forecast, we raise our 2026 (CY26) real GDP growth forecast by 0.3 percentage points to 6.8 per cent year-on-year (Y-o-Y), and our FY27 forecast by 0.4 percentage points to 6.5 per cent Y-o-Y respectively,” Goldman Sachs said in its report ‘India: Improved macro outlook after the US-Iran deal’.
Goldman Sachs’ commodities team now expects Brent crude to average $82 a barrel in the second half of 2026, compared with an earlier forecast of $92 a barrel.
The report added that the US-Iran peace deal should improve India’s growth outlook — lower oil prices have taken out the risk of additional fuel pass-through to consumers, while easing supply constraints were already beginning to support a recovery in investment related indicators in May from their March-April trough.
“Q2CY26 (April-June) real GDP growth is tracking above our expectations,” the report said.
Goldman Sachs’ growth projection for India is slightly lower than the Reserve Bank of India’s (RBI’s) estimate of 6.6 per cent for FY27; but its inflation forecast is lower than the 5.1 per cent projected by the central bank for the current financial year.
Fuel price hike so far and a subpar monsoon are likely to weigh on consumption, but the impact may not show beyond the July-September quarter, according to Goldman Sachs. The India Meteorological Department has forecast a below-normal monsoon for 2026, projecting rainfall at 90 per cent of the long-period average because of El Niño conditions.
Fuel price hike is also expected to feed through into inflation over the coming months, but the lower oil price path suggests that the risk of additional pass-through has diminished materially, the report said.
“Lower crude oil prices have been accompanied by a decline in petrochemical product prices. Although the earlier increases in polymer prices are still likely to lift core goods inflation in the near term, we now expect the impact to be limited, with a lower likelihood of incremental price increases across the core goods basket,” Goldman Sachs said.
“Reflecting the lower oil price assumptions and reduced manufactured goods inflation pressures, we lower our core goods inflation forecast for CY26 and FY27 by 0.3 percentage points and 0.5 percentage points each to 3.2 per cent Y-o-Y and 4.1 per cent Y-o-Y respectively,” the report said.
“As a result, we lower our core inflation forecast for CY26 and FY27 by 0.1 percentage points and 0.2 percentage points to 4.2 per cent Y-o-Y and 4.5 per cent Y-o-Y, respectively. Put together, we lower our headline CPI inflation forecast for CY26 and FY27 by 0.2 percentage points and 0.3 percentage points to 4.4 per cent Y-o-Y and 4.9 per cent Y-o-Y, respectively,” it added.
Goldman Sachs continues to expect a cumulative 50 bps hike in the policy rate in 2026, with a 25 bps hike each in the October and December monetary policy meetings, taking the repo rate to 5.75 per cent from 5.25 per cent.
“If the recent correction in petrochemical prices persists then manufacturers may face less pressure to raise prices. In such a scenario, the RBI may defer the policy tightening cycle,” the report said.
The improved oil outlook has also strengthened India’s external sector projections. “We lower our current account deficit forecast for CY26 further by 0.2 percentage points to 1.1 per cent of GDP. Incorporating our latest current account deficit forecast, we now expect a balance of payments surplus of 0.7 per cent of GDP (vs. 0.6 per cent of GDP) for CY26,” the firm said in its report.
Source: Business Standard
