India Economy Demonstrates Resilience Amid Rising Middle East War-Related Risks, Government Report Reveals

India's Economy Remains Resilient but Faces Mounting Risks from Middle East Conflict

India's economy has demonstrated remarkable resilience, but it now faces mounting risks from the ongoing Middle East conflict. The conflict has disrupted supplies of energy, fertilizers, and industrial raw materials, raised costs, and weakened trade, according to the government's monthly economic report released on Wednesday.

India's economy enters the new fiscal year, FY2026-27, at the intersection of domestic resilience and external turbulence. The West Asia war has altered the macroeconomic outlook following real GDP growth of 7.6% in the previous fiscal year. Despite this, India remains a relative bright spot, with the International Monetary Fund (IMF) raising its 2026-27 growth forecast for the country to 6.5% from 6.4%.

However, the report warns that risks are tilted toward higher inflation, wider fiscal and external deficits, and slower growth, especially if energy and fertilizer supply disruptions persist. The government's report highlights several key challenges facing the economy.

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Key Indicators

The report notes that India's crude oil basket averaged $113 per barrel in March and was just under $115 per barrel this month through April 24. Higher wholesale prices indicate that cost pressures are building, even though consumer inflation remains moderate. Retail inflation rose to 3.4% in March from 3.2% in February, while food inflation increased to 3.87%. Wholesale inflation accelerated to 3.88% in March from 2.13% in February, reflecting rapid transmission of higher energy and commodity prices at the producer level.

The report also highlights the impact of the conflict on trade, with merchandise exports down 7.4% year-on-year and 24 out of 30 major export categories declining. Exports to the United Arab Emirates and Saudi Arabia fell sharply due to the Strait of Hormuz blockade, which raised freight, insurance, and logistics costs. The report warns that remittances, which reached a record $135.4 billion in FY25, could come under pressure if a prolonged conflict weakens Gulf labour markets.

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In addition, India's unemployment rate rose to 5.1% in March from 4.9% in February, though the report notes that labour conditions have broadly stabilised, while confidence in future job prospects has weakened, particularly in urban India.