West Asia Conflict Weighs on India's Economy, Suggests Slower GDP Growth

Economic Reality Sets In for India Amid West Asia Conflict

The ongoing West Asia conflict has shifted from a geopolitical risk to an economic reality for India, with a new report from Crisil Intelligence warning of slower growth, a wider current account deficit, and a sharp spike in inflation through fiscal 2027.

According to the report, India's real GDP growth is now projected to slow to 6.6 per cent in fiscal 2027, down from 7.6 per cent recorded in fiscal 2026. The current account deficit (CAD) is expected to widen significantly, from an estimated 0.8 per cent of GDP in fiscal 2026 to 2.2 per cent in fiscal 2027.

The report highlights the closure of the Strait of Hormuz, which is described as the largest energy shock on record. The damage to oil and gas infrastructure in the region is expected to take time to recover, even after the route reopens. In response, Crisil Intelligence has revised its Brent crude forecast upward to USD 90–95 per barrel for fiscal 2027, from its earlier estimate of USD 82–87 per barrel.

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The impact of the energy shock extends beyond energy to freight and insurance costs, supply chains, and fertilisers, which have a multidimensional impact on the economy.

Average consumer price index (CPI) inflation is expected to surge to 5.1 per cent in fiscal 2027, more than double the 2.0 per cent recorded in fiscal 2026, as producers pass on elevated energy and transportation costs to consumers.

India's export sector faces a double hit, with weakening global demand combined with trade bottlenecks expected to stifle growth. Import-dependent manufacturing will be particularly hard hit by rising input costs. Remittances also add another dimension of vulnerability, with West Asia accounting for approximately 38 per cent of remittances into India, and continued regional tensions putting that inflow at direct risk.

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While the government has limited the rise in retail fuel inflation so far, a persistent rise in global prices could see retail fuel prices for cooking and transportation climb further. Rising energy and input costs are expected to flow through to core inflation as well.