The report warns that sustained increases in oil prices could dent India’s growth trajectory, given the country’s heavy reliance on energy imports.
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“We estimate that for every 10% increase in oil prices (sustainably), GDP could be lower by 20–25bps,” the report said.
In its base-case scenario, HDFC Bank estimates India’s GDP growth at 7.2% in FY27, assuming global commodity prices remain contained and crude oil averages between $60–70 per barrel. However, any prolonged escalation in the West Asia conflict that keeps oil prices elevated could put this projection under pressure.
The duration of the conflict remains the key variable shaping the economic outlook. The report notes that if tensions ease quickly and the conflict resolves within the next 10–15 days, oil prices could retreat to the earlier expected range.
“If the conflict were to resolve over the next 10-15 days, we could quickly revert to a scenario where oil is back within a range of $60-70 pbl (our earlier base case),” the report said.India is particularly vulnerable to oil price shocks as it imports nearly 89% of its crude requirements, with a significant portion of supplies passing through the strategically critical Strait of Hormuz.
Impact on inflation
Rising crude oil prices could significantly push up inflation if the West Asia conflict drags on. In its base case, assuming oil prices average $65 per barrel, the bank had projected retail inflation at 4.2% in FY27, up from 2.1% in FY26.
However, if the conflict prolongs and crude averages $90 per barrel, inflationary pressures could intensify. “In a scenario where the conflict prolongs and oil price averages at $90 pbl., the impact on inflation could range between 70-100bps from our current forecast assuming both a direct and indirect cosh push inflation scenario, pushing headline inflation up to 5-5.5% for FY27,” the report said.
At the wholesale level as well, price pressures could build. HDFC Bank estimates WPI inflation at 4% in FY27, but warned of upside risks. “A 10% increase in crude and crude products could result in an increase in headline WPI by ~90-100 bps,” the report noted.
Impact on current account deficit
Higher oil prices could also widen India’s current account deficit (CAD), reflecting the country’s heavy dependence on energy imports.
HDFC Bank estimates CAD/GDP at 0.9% in FY26, revised upward by 20 basis points from its earlier forecast of 0.7%, due to the recent increase in India’s crude oil basket.
For FY27, with oil assumed at $65 per barrel, the bank had projected CAD/GDP at 1.1%. However, the outlook could worsen sharply if tensions in West Asia persist.
Rupee outlook
The rupee is expected to remain under pressure in the near term as global uncertainty and capital outflows weigh on the currency.
“The USD/INR pair is likely to remain under depreciation pressure in the near-term. We continue to expect a range of 91-93 over the coming weeks,” the report said.
Foreign investor flows have already turned negative amid the heightened geopolitical risk. “The total FII outflow in March 2026 till date stood at (-) USD 3 bn,” it noted.
A quicker end to the conflict could provide some relief. “An end to the conflict before March-end could result in a brief rally in the INR, towards the lower end of our forecast range,” the report said. However, if tensions persist, the rupee could weaken further. “If chances of a prolonged conflict rise, we could see a range of 92-95 emerge over the course of the coming months.”
RBI policy view
The Reserve Bank of India is expected to focus on managing currency volatility rather than defending any specific level of the rupee.
“The central bank is expected to continue controlling volatility in the INR in the near-term, without putting up a hard defence against any levels,” the report said.
Liquidity pressures arising from foreign exchange interventions are likely to be offset through durable liquidity operations. “Any drags on liquidity due to FX intervention is expected to be sterilised through durable liquidity injections operations (FX swaps, OMOs etc.),” it noted.
For short-term liquidity pressures, such as tax outflows, the RBI may rely on temporary measures. “More frictional liquidity drags (upcoming tax outflows etc.) could however be managed by transitory fine-tuning operations.”
At present, HDFC Bank expects the central bank to maintain its policy stance. “At this stage, we continue to expect the RBI to remain on hold throughout FY27, keeping the repo rate at 5.25%.”
The bank further noted that policy tools could help cushion the impact. “Fiscal and monetary tools available could act as important buffers,” it said, adding that authorities may intervene through measures such as duty adjustments or liquidity management to contain broader economic pressures.
For now, markets remain watchful as conflicting signals around the West Asia conflict keep uncertainty high, with the eventual duration of the crisis likely to determine the scale of the economic fallout.