India Has Capacity To Handle External Pressure, Says S&P Global Ratings

India’s economic fundamentals remain resilient despite elevated crude oil prices and foreign capital outflows, S&P Global Ratings said, adding that concerns around external vulnerability and investment withdrawals may be overstated.

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YeeFarn Phua, Director for Sovereign and International Public Finance Ratings for Asia at S&P Global Ratings, said India has adequate buffers to absorb a wider current-account deficit caused by rising energy costs.

The remarks come at a time when the rupee has weakened to record lows and foreign investors have continued pulling money from Indian equities amid higher crude prices linked to the Iran conflict.

S&P had upgraded India’s sovereign rating to BBB from BBB- in August with a stable outlook, citing improvements in economic fundamentals and fiscal management.

Foreign Outflow Concerns “Overplayed”

Phua said worries around foreign investment outflows were “a bit overplayed,” noting that a large portion of net outflows reflected profit repatriation by overseas investors rather than a broad withdrawal of capital from India.

She added that gross inflows into the country remain healthy and investment opportunities continue to support long-term investor interest.

According to the latest available government data, India recorded net foreign direct investment inflows of $4.6 billion in February after six straight months of outflows.

Foreign institutional investors have remained cautious in recent months as global crude oil prices climbed sharply and geopolitical tensions increased uncertainty across emerging markets.

The rupee has also remained under pressure in 2026, making it one of the weaker-performing Asian currencies this year.

Oil Prices Continue To Pressure External Accounts

The current account deficit of India was narrowing due to the export of services and robust domestic demand. Yet, the increase in the price level of crude oil has once again put pressure on the import bill and the foreign exchange reserve of the country. India is dependent on imports for more than 85% of its crude oil needs.

Brent crude prices have remained above the $100 per barrel mark in recent weeks amid supply concerns linked to the continuing conflict in West Asia and uncertainty around shipping routes in the Strait of Hormuz.

Higher oil prices have also pushed up concerns around inflation, fiscal spending, and currency stability.

Government Reviewing Measures To Support Reserves

The Indian Centre is also assessing actions that can help protect foreign currency reserves and contain the current-account deficit in view of high import bills.

According to reports, the Indian government is reportedly considering various initiatives, including increased duty on luxury items like gold and electronics. Fuel price changes have also become an important area of discussion, with the state-owned oil companies struggling with high crude prices. The Reserve Bank of India has also been making periodic interventions in the forex markets to curb excessive volatility in the Indian rupee.

S&P, despite the aforementioned risk factors for India, said that the nation’s overall economic situation remained stable owing to robust domestic consumption, investments, and growth prospects.

The above observations were made by the international credit rating agency recently when policymakers were paying close attention to international commodity prices, capital flows, and geopolitical events, which could impact India’s external positions in the coming months.