'Indian economy is sound, has enough buffers to...': S&P calms oil shock fears

India has enough buffers to absorb the economic impact of soaring crude oil prices and a wider current account deficit triggered by the Iran war, according to S&P Global Ratings. 

The concerns around foreign outflows from India were "a bit overplayed", the global agency said, arguing that the country's macroeconomic fundamentals remained strong despite rising global financial pressures.

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"The important story is that fundamentally the economy is sound, with plenty of investment opportunities," YeeFarn Phua, director, sovereign and international public finance ratings for Asia at S&P, told Bloomberg in an interview.

Phua said India had "sufficient buffer" to absorb a higher current-account deficit arising from elevated crude oil prices. The remarks come at a time when the Iran war-driven oil shock and record foreign fund outflows have pushed the rupee to fresh lows.

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In August 2025, S&P upgraded India's sovereign credit rating to BBB from BBB- with a stable outlook.

According to the report, S&P said worries over net foreign business investment outflows were exaggerated because a large part of the outflows reflected repatriation of profits, while gross inflows into India remained strong.

India's current account deficit had narrowed in recent years, but the rise in crude oil prices has again put pressure on the external balance. Foreign investors have also stepped up selling in Indian equities, dragging both the rupee and local stocks behind several regional peers.

Latest data showed India received net foreign direct investment worth $4.6 billion in February after six straight months of outflows.

The report comes as the Centre steps up austerity measures amid the continuing crisis in West Asia and concerns over rising import bills.

Prime Minister Narendra Modi on Sunday urged citizens to reduce fuel consumption, adopt work-from-home practices where possible, use public transport and electric vehicles, and cut non-essential imports to conserve foreign exchange.

The government has also started implementing visible austerity measures at the top level.

The Prime Minister reduced the size of his official convoy during visits to Gujarat and Assam while ensuring compliance with Special Protection Group security protocols. He also asked officials to include electric vehicles in his convoy wherever possible without making new purchases.

Union Home Minister Amit Shah followed suit on Wednesday, cutting the size of his official convoy by more than 50 per cent while retaining all vehicles required under the Central Reserve Police Force’s ‘Z+’ security protocol.

Meanwhile, India is also considering emergency measures to strengthen foreign exchange reserves and reduce pressure from rising oil imports. 

Bloomberg reported that the government is weighing options such as increasing fuel prices and curbing non-essential imports, including gold and electronic goods.

The pressure on India’s economy has intensified after crude prices surged due to supply disruptions linked to the Iran conflict. Higher oil prices directly raise India's import bill as the country imports nearly 85 per cent of its crude oil requirements.