Goldman Sachs upgraded India’s growth outlook as easing tensions in the Persian Gulf cooled oil risks | Today’s news

India’s economic outlook has improved substantially following the US-Iran peace deal, with lower oil prices reducing inflationary pressures, easing fiscal risks and strengthening the country’s external balance, new Goldman Sachs research says.

The investment bank raised India’s gross domestic product (GDP) growth forecast for calendar year 2026 by 30 basis points to 6.8%, while cutting its inflation projection by 20 basis points to 4.4% and cutting its current account deficit estimate to 1.1% of GDP from 1.3%.

The upgrade comes after India weathered the Middle East conflict better than expected, with fiscal and quasi-fiscal measures that absorbed much of the energy shock and limited the pass-through of higher fuel prices to consumers, the note said. “India is real. GDP growth held up better than we expected,” Goldman Sachs said, noting that the economy grew 7.8% year-on-year in the first quarter of CY26, roughly 50 basis points higher than its earlier forecast.

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Investment, service resistant

This stronger-than-expected growth was led by resilient investment activity and robust performance of the services sector, the note said. Gross fixed capital formation rose to a six-quarter high of 10.8% during the quarter, helped by healthy auto production and stronger imports of capital goods despite supply chain disruptions related to Conflict in the Persian Gulf.

Goldman Sachs said the recent U.S.-Iran deal had significantly reduced downside risks to the economy by lowering oil prices and easing supply constraints that burdened investment activity. High-frequency indicators are already showing signs of recovery, with port cargo growth hitting a four-month high in May after weakening during March and April.

While he expects household consumption to remain under pressure during the second and third quarters due to rising fuel prices, he believes the drag will fade after that. Lower oil prices have reduced the likelihood of further increases in gasoline and diesel prices, limiting further drag on consumer spending, the company said.

However, the investment bank said weather-related uncertainties, including the IMD’s predictions of heat waves, remain near-term headwinds, especially for rural consumption growth.

The report also highlighted continued strength in India’s services sector. The gross value added of services grew by 9.9% year-on-year in the first quarter, driven by trade, hotels and transport. Manufacturing, while somewhat tempered by weaker chemicals and metals output, continued to benefit from strong auto production, he said.

Another key beneficiary of the relaxed geopolitical situation is the government’s fiscal position, according to Goldman Sachs. It said a sharp correction in world urea prices had significantly reduced the risk of a sharp increase in fertilizer subsidies. Recent import tenders have been awarded at prices substantially below those prevailing during the Middle East peak conflict.

Combined with lower oil prices, this could ease pressure on the Centre’s spending obligations and create more fiscal space during FY27.

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Forecast of lower inflation

The improved outlook also prompted Goldman Sachs to cut inflation forecasts. It now expects headline consumer inflation to average 4.4% in CY26 and 4.9% in FY27, down from earlier estimates.

The easing reflects not only lower fuel costs but also falling petrochemical prices, which are expected to ease pressure on manufacturers to raise prices on a wide range of consumer goods. Goldman Sachs cut its forecast for basic commodities inflation for CY26 and FY27, citing reduced risk of additional cost pass-through.

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On the external front, lower oil prices are expected to reduce India’s import bill, while resilient inflows of remittances from the Gulf economies provide further support. Goldman Sachs cut its forecast for India’s CY26 oil import bill to $215 billion from $220 billion. It also raised its estimate of remittances to $140 billion after inflows remained strong despite regional conflict.

As a result, it now expects India’s current account deficit to narrow to 1.1% of GDP in CY26. It also forecasts a balance of payments surplus of 0.7% of GDP, slightly higher than its previous estimate.