RBI Warns: Mideast Tensions Threaten India's Growth

India's economic outlook for 2026-27 faces a projected GDP growth of 6.9%, a decrease from the 7.6% estimated for the previous financial year, according to the Reserve Bank of India (RBI). A significant downside risk identified is the prolonged conflict in West Asia, which could derail the country's positive growth trajectory if it escalates.

The central bank noted that while near-term impacts of the conflict might be contained, potential headwinds include elevated energy prices, supply chain disruptions, and financial market volatility. Conversely, strong corporate and bank balance sheets, along with the government's focus on capital expenditure and trade agreements, are seen as key positives.

Inflation is now projected at 4.6% for 2026-27, a notable increase from the 3.7% revised estimate for the prior year, with risks tilted to the upside. This rise is attributed to potential surges in global fuel and commodity prices, geopolitical tensions, and exchange rate volatility. The RBI stressed the need for continuous assessment of global developments to frame appropriate policy responses.

The RBI report also highlighted that despite a net outflow in portfolio flows during 2025-26, India's external sector remains robust due to ample foreign exchange reserves and modest external debt. This contributes to overall macroeconomic and financial stability. Global growth is projected by the IMF to slow to 3.1% in 2026, with trade volumes decelerating, underscoring the sensitive global economic environment.