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Economists said the impact on India’s economy will largely depend on the trajectory of crude oil prices and the duration of the conflict, which has already rattled global energy markets.
Rajani Sinha, chief economist at CARE Ratings, said that if crude prices remain elevated in the $100–$120 per barrel range throughout the year, India’s GDP growth could fall by up to 40 bps to around 6.8% in FY27.
“Impact on retail inflation will depend on whether higher fuel costs are passed on to consumers,” Sinha said. “The government will likely try to keep prices unchanged, and oil companies may absorb some of the increase. However, inflation may cross 5% in FY27, compared with our current estimate of 4.3%.”
Inflation risks mount amid oil volatility
Economists said higher oil prices and supply disruptions could also put upward pressure on inflation through higher fuel and input costs across sectors.
Gaura Sengupta, chief economist at IDFC First Bank, said retail prices of petrol and diesel are likely to remain unchanged in the short term, meaning oil marketing companies could bear the immediate burden.“In our assessment, even a 10% increase in consumer prices of these commodities could reduce overall growth by 15 bps from our current estimates, while pushing inflation up by about 30 bps,” she said, adding that higher gold prices could further fuel core inflation.
Madan Sabnavis, chief economist at Bank of Baroda, expects inflation to rise by 40–50 bps, citing higher input costs due to supply disruptions and elevated fuel prices.
“As of now, oil prices are highly volatile. Prolonged volatility and eventual price transmission could push inflation up to around 4.5%,” Sabnavis said, adding that such a scenario would limit the scope for interest-rate cuts and likely keep the policy rate unchanged in FY27.
Growth outlook tied to duration of conflict
Economists said the ultimate economic impact will depend on how long the conflict lasts and whether global energy markets stabilise.
Sakshi Gupta, principal economist at HDFC Bank, said a 10% rise in average crude prices next year could increase retail inflation by 20–30 bps, while lowering GDP growth by 20–25 bps from the projected 7.2%.
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The latest projections come after India’s chief economic adviser V Anantha Nageswaran raised the FY27 growth forecast to 7–7.4% on February 27. The Economic Survey tabled in Parliament earlier this year projected headline inflation of 3.9% in the first quarter and 4% in the second quarter of FY27.
However, economists cautioned that the outlook remains uncertain.
“Everything is contingent on the extent and duration of the conflict and the consequent implications for domestic investment, inflation and external trade,” said Aditi Nayar, chief economist at ICRA.
(With inputs from TOI)