What's driving India's growth

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India's economic growth story remains one of the brightest in Asia-Pacific even as rising geopolitical tensions in the Middle East cast a shadow over global markets, according to S&P Global Ratings economist Vishrut Rana.S&P has revised its GDP growth forecast for India upward by 40 basis points to 7.1% for FY27, citing stronger-than-expected domestic demand momentum after the economy clocked 7.8% growth in the October–December quarter. While the revised estimate represents a moderation from the FY26 projection of 7.6%, analysts point to resilient private and public investment as key pillars sustaining India's trajectory.According to Rana, several structural forces are at play. Domestic demand continues to outperform regional peers, fueled by consumer spending and sustained capital expenditure. Additionally, India's growing footprint in the global technology sector — spanning software services, data centre infrastructure, and AI-linked investments — is expected to remain a meaningful growth driver through the rest of the year."The global boom in AI investment and data centre construction has been a very significant driver for global activity," Rana told ET Now, adding that technology sectors continue to outperform across Asia, with India well-positioned to benefit from that trend.The central risk to this outlook is energy. S&P's base case assumes crude oil prices averaging $80 per barrel in 2026, up sharply from approximately $65 per barrel at the close of 2025. The increase reflects ongoing disruptions in Middle East energy supply chains, with the Strait of Hormuz — through which an estimated 15–20% of global oil flows — emerging as a critical chokepoint.In a downside scenario where conflict in West Asia escalates and the Strait remains disrupted, S&P warns oil prices could spike to as high as $200 per barrel. A more moderate stress scenario projects crude at $130 per barrel, which alone could shave 50 to 70 basis points off growth across major Asia-Pacific economies. For India, which remains heavily reliant on imported energy, any sustained oil price shock would compress consumer purchasing power and potentially prompt a tightening in monetary policy — both headwinds to growth.S&P's analysis draws a sharp contrast between India and China's current growth drivers. China faces persistent headwinds from a weakening property sector, falling residential prices, and softening consumer confidence — all of which are dragging on domestic demand. Its strength, however, lies in manufacturing competitiveness and deep integration into global technology supply chains.India, by contrast, is deriving its momentum primarily from domestic consumption and investment, with technology services adding further momentum. Rana noted that while India currently leads China on domestic demand dynamics, China retains an edge in manufacturing scale and supply chain integration — particularly in sectors tied to global tech hardware.S&P's broader view is that global growth can hold up through 2026 — provided the Middle East conflict does not escalate into a sustained energy supply crisis. The agency's base case assumes a gradual easing of hostilities, which would allow the AI and data centre investment boom to continue acting as a global growth engine.However, economists caution that oil supply shocks remain among the most costly disruptions a modern economy can face. With global energy markets already tightened by existing disruptions, the margin for error is narrower than it has been in years.For India, the coming months will test whether its domestically driven growth model can insulate it from external shocks — or whether rising energy import costs and global uncertainty will temper what has otherwise been a standout economic performance in Asia.