The shock could serve as an opportunity to tackle near-term bottlenecks and remove hurdles, supporting longer-term growth, it noted.
As the conflict extended beyond two months, rising bond yields, higher inflation, and a weakening rupee are weighing on growth, said DK Joshi, chief economist at Crisil.
According to Crisil, India’s gross domestic product (GDP) growth is expected to moderate to 6.6% in FY27 from 7.1% estimated earlier.
GDP growth is estimated at 7.6% for FY26, based on official estimates.
Describing the conflict as the largest energy shock on record, the report said it was testing India’s resilience, with spillovers into freight and insurance costs, supply chains and fertilisers.
India imports 45-50% of its crude oil from the Middle East.Joshi outlined three policy priorities for India going ahead: energy security, food security and economic reforms. He emphasised that deregulatory measures and structural changes will be key to improving the business environment and strengthening India’s appeal as an investment destination.
“If the crisis continues, the winter crop could face (fertilizer) shortages, but for summer crops we are reasonably well placed,” said Joshi.
Fiscal consolidation
India’s post-Covid fiscal consolidation, reducing the fiscal deficit from 9.2% of GDP in FY21 to 4.4% in FY26, now faces its toughest challenge, the report noted.
India’s debt-to-GDP ratio is projected to rise to 57.5% from 56.1% in FY26, delaying the target of 49-51% by FY31.
Since the conflict began, the government has rationalised cooking gas allocation, resumed Russian crude purchases and announced fuel and fertiliser subsidies and excise duty cuts on petrol and diesel.
Deepa Kumar, head of Asia-Pacific country risk at S&P Global Market Intelligence, said that to meet the goal, the government may need to reduce its infrastructure-linked capital expenditure, which has been a key driver of growth in recent years.
She also stressed that self-sufficiency is crucial for India to diversify risk across suppliers and enable deeper manufacturing ecosystems. Besides, diversification regarding energy resources or fertilisers is also important.
Joshi noted that higher global crude prices will impact wholesale inflation more significantly through imported goods and raw materials than retail inflation as the government has been holding pump prices stable. Wholesale and retail inflation stood at 3.9% and 3.4%, respectively, in March.
The report also highlighted that the current energy crisis underscores the need for a reliable and resilient energy system.