Goldman Sachs cuts India’s GDP forecast to 5.9% for FY26:Says inflation can rise to more than 4% due to oil price hike supply disruptions

Global investment bank Goldman Sachs has reduced India’s economic growth forecast for the year 2026. According to the bank’s latest report, India’s GDP growth is now expected to be 5.9%, which is significantly lower than the 7% estimate made before the Iran war. Goldman has warned that to control rupee weakness and inflation, RBI may have to increase interest rates by 0.50% (50 basis points). Crude oil prices disrupted calculations Goldman Sachs cited crude oil prices and supply difficulties as the biggest reason for cutting growth estimates. The report states that oil supply through the Strait of Hormuz could remain closed until mid-April. India imports most of its oil needs, so expensive oil negatively impacts the country’s foreign exchange reserves, fiscal deficit and inflation all three. Brent crude could go up to $115 Bank analysts believe that the average price of Brent crude could be $105 in March and $115 per barrel in April. However, by the fourth quarter (October-December) of the year, it is expected to fall to $80 per barrel. Given this volatility, Goldman also reduced India’s growth estimate to 6.5% on March 13, which has now been further lowered. Inflation expected to reach 4.6% According to Goldman Sachs, India’s inflation rate could reach 4.6% in 2026. Previously, the bank had estimated it to remain at 3.9%. However, this is still within the Reserve Bank’s comfort zone of 2% to 6%, but the falling value of the rupee could increase RBI’s concerns. Interest rate may increase by 0.50% The report states that to support the falling rupee and prevent the ‘second round effect’ of inflation, RBI may increase the repo rate by 0.50%. Market experts believe that in the coming year, we could see 3 to 4 increases of 0.25-0.25% each (total 0.75% to 1%). Rupee falls 4% against dollar The Indian Rupee has weakened by 4% against the dollar so far this year (2026). Last year also saw a decline of 4.7%. When the rupee weakens, imports become more expensive, which leads to price increases in the retail market. Current Account Deficit will increase Goldman has estimated that India’s current account deficit could reach 2% of GDP in 2026. It was 1.3% in the October-December 2025 quarter. High oil prices directly contribute to increasing this deficit. What is the ‘Strait of Hormuz’ and why is it important? This is a narrow sea route located between Oman and Iran. About 20% of the world’s crude oil passes through this route. If this route is closed due to war or any tension with Iran, the oil supply in the global market stops and prices rise rapidly. What is GDP? GDP is used to track the health of the economy. It shows the value of all goods and services produced within a country in a fixed time period. It also includes production by foreign companies operating within the country’s borders. There are two types of GDP There are two types of GDP. Real GDP and Nominal GDP. In Real GDP, the value of goods and services is calculated at base year value or stable prices. Currently, the base year for calculating GDP is 2011-12. While Nominal GDP is calculated at current prices. How is GDP calculated? A formula is used to calculate GDP. GDP=C+G+I+NX, where C means Private Consumption, G means Government Spending, I means Investment and NX means Net Exports. Who is responsible for GDP fluctuations? Four important engines increase or decrease GDP. First is you and me. How much you spend contributes to our economy. Second is private sector business growth. This contributes 32% to GDP. Third is government spending. This means how much the government is spending on producing goods and services. It contributes 11% to GDP. And fourth is net demand. For this, India’s total exports are subtracted from total imports, since imports are higher than exports in India, its impact on GDP remains negative.