S&P Global Ratings has stated that India's economy possesses robust buffers to manage the economic impact of escalating crude oil prices and a widening current account deficit. The global agency's assessment comes amid concerns triggered by the Iran conflict and significant foreign fund outflows.
India's Economic Resilience Under Scrutiny
YeeFarn Phua, Director of Sovereign and International Public Finance Ratings for Asia at S&P, highlighted in an interview that the Indian economy is fundamentally sound, offering numerous investment opportunities. Phua emphasized that India has adequate capacity to absorb a higher current-account deficit, a scenario driven by elevated crude oil prices.
These remarks are particularly pertinent as the ongoing Iran war has pushed oil prices higher and led to record foreign fund outflows, consequently weakening the rupee to new lows.
Understanding Foreign Outflows and Current Account Deficit
S&P Global Ratings previously upgraded India's sovereign credit rating to BBB from BBB- with a stable outlook in August 2025. The agency clarified that worries surrounding net foreign business investment outflows are somewhat exaggerated. A substantial portion of these outflows, S&P noted, represents the repatriation of profits, while gross inflows into India have remained strong.
While India's current account deficit had narrowed in recent years, the recent surge in crude oil prices has renewed pressure on the nation's external balance. Foreign investors have also intensified selling in Indian equities, impacting both the rupee and local stock markets.
Government Measures to Stabilize the Economy
In response to the economic pressures, the Indian government has initiated austerity measures. Prime Minister Narendra Modi has urged citizens to reduce fuel consumption, adopt work-from-home practices, utilize public transport and electric vehicles, and curb non-essential imports to conserve foreign exchange.
Visible austerity measures have also been implemented at the top levels of government, with the Prime Minister and Union Home Minister Amit Shah reducing the size of their official convoys. Furthermore, the government is reportedly exploring emergency measures to bolster foreign exchange reserves and alleviate pressure from rising oil imports, including potential increases in fuel prices and restrictions on non-essential imports like gold and electronic goods.
India, which imports nearly 85% of its crude oil requirements, faces significant economic challenges when global oil prices climb, directly impacting its import bill and overall economic stability.