India has stepped into FY27 against an increasingly challenging global backdrop marked by escalating geopolitical hostilities. The ongoing conflict in West Asia has triggered a sharp surge in international energy prices, with Brent crude and Liquefied Natural Gas (Japan-Korea Marker) rising by 55% and 90%, respectively, since the onset of the crisis.
According to a report by Care Ratings, unlike the early phase of the Russia–Ukraine conflict, the latest hostilities have disrupted key trade routes and created supply-side constraints, with several energy extraction and production facilities going offline.
Energy prices to remain elevated despite possible de-escalation
Given the time required to restore disrupted capacities and the persistent threat of further supply shocks, energy prices are expected to remain elevated even if the conflict de-escalates early in FY27.
The West Asia crisis has introduced significant uncertainty around global oil prices and supply dynamics. In light of the prolonged nature of the conflict and rising risks of disruptions, projections for the Indian economy have been revised from earlier post-conflict assessments.
Global growth slows, inflation pressures rise
Recent projections by the OECD highlight the broader macroeconomic impact of the conflict. Global growth is expected to moderate to 2.9% in 2026, down from an estimated 3.3% in 2025.
Quarterly growth projections for 2026 are also expected to remain below the pre-conflict trajectory. At the same time, inflation across G20 economies is projected to rise to 4% in 2026 from 3.4% in 2025.
Rising inflationary pressures have prompted several major central banks to revise their near- to medium-term inflation outlook upward, signalling potential implications for future policy rate trajectories.
High energy import dependence raises vulnerability
The ongoing conflict and potential damage to critical energy infrastructure pose significant risks for economies heavily reliant on West Asia for energy imports.
Several Asian economies, including India, Japan, China, and South Korea, remain particularly vulnerable due to their high dependence on energy imports from the region.
India’s total oil and gas import dependency is estimated at around 4.2% of GDP (2024), with approximately 2% directly linked to imports from the Middle East.
Macro risks intensify across growth, inflation and fiscal metrics
The global economy is currently navigating a phase of heightened volatility, with the spillover effects expected to impact India through multiple channels.
Rising global energy prices and potential supply chain disruptions are likely to exert pressure on both growth and inflation. At the same time, the need for additional fiscal support to cushion the economy could strain the government’s fiscal position.
External sector vulnerabilities also remain in focus, given India’s dependence on energy imports, along with its exposure to exports and remittances from the West Asia region, and moderating capital flows.
Amid heightened volatility in global oil prices, macroeconomic outcomes will depend significantly on different crude price scenarios. The baseline assumption for FY27 is an average crude oil price of USD 90 per barrel.
India’s GDP growth seen moderating to 6.7% in FY27
The Indian economy demonstrated resilience in FY26, with real GDP growth estimated at 7.6% as per the Second Advance Estimates. This performance was supported by improved consumption and sustained investment momentum, aided by policy measures such as income tax reductions, GST rate rationalisation, and a continued focus on capital expenditure.
However, the escalation of the West Asia conflict has weakened the growth outlook for FY27. Under the baseline scenario, assuming average crude oil prices of USD 90 per barrel—India’s GDP growth is projected to moderate to 6.7%.
This marks a downward revision from the pre-conflict forecast of 7.2%, which was based on crude oil prices in the range of $ 60–70 per barrel.
Downside risks persist amid oil price uncertainty
Downside risks to growth remain significant, particularly in the event of a prolonged conflict and sustained high energy prices. In an extreme scenario where crude oil prices average around USD 120 per barrel in FY27, India’s GDP growth could fall below 6%.
Going forward, the duration of the conflict and its impact on global supply chains will remain critical factors influencing India’s macroeconomic trajectory.