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West Asia Conflict: India's Economy Faces Major Risks
19 May
Summary
- West Asia conflict significantly impacts India's economy and trade.
- GDP growth projected to slow to 6.6% in fiscal 2027.
- Current account deficit expected to widen to 2.2% of GDP.
The prolonged conflict in West Asia has emerged as a substantial risk to the Indian economy, disrupting international trade and escalating import expenses. Crisil Intelligence highlights that the conflict, particularly the closure of the Strait of Hormuz, has caused an unprecedented energy shock. This is expected to have lasting effects on oil and gas infrastructure.
The economic repercussions are anticipated to disproportionately affect India's manufacturing sector, which relies heavily on imports. Simultaneously, diminishing global demand and trade bottlenecks are hindering export growth. As a result, India's GDP growth forecast for fiscal 2027 has been revised down to 6.6% from 7.6% in fiscal 2026.
Furthermore, the current account deficit is projected to widen significantly to 2.2% of GDP in fiscal 2027, a substantial increase from the estimated 0.8% in the prior fiscal year. This widening is attributed to elevated international prices for crude oil, gas, and fertilizers, which will increase the import bill. Remittances also face risks, given that West Asia accounts for a significant portion of India's remittances.
Domestic inflation is also feeling the pressure, with average consumer price index (CPI) inflation expected to climb to 5.1% in fiscal 2027 from 2.0% in fiscal 2026. Producers are passing on increased energy and transportation costs to consumers, leading to higher core inflation. Crisil Intelligence has raised its Brent crude price forecast to $90-95 per barrel for fiscal 2027, reflecting these heightened global commodity prices and broader economic impacts on freight, insurance, and supply chains.
