A surge in crude-linked input costs, disruptions to supply chains and higher freight rates are forcing companies to raise prices or rethink production strategies. Corporate executives say the cost pressures could start eroding some of the demand momentum that followed the GST restructuring. However, the good news is the broader consumption outlook remains resilient.
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Rising input costs push companies toward price hikes
The first visible impact of the conflict is appearing in the cost structure of manufacturers. Companies across sectors say prices of key raw materials have jumped sharply due to higher crude oil prices, shipping disruptions and a weaker rupee. According to an ET report, prices of products such as cars, televisions, refrigerators and air conditioners could rise around 5–6% from April, reflecting the surge in input costs including plastics, resins and polymers derived from crude oil.
Automakers are considering price increases of about 2–3%, while consumer electronics manufacturers may raise prices by as much as 5–6%. Luxury carmakers such as Mercedes‑Benz and Audi have already announced roughly 2% price increases effective April 1, while mass-market manufacturers are still finalising their revisions.
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Executives say the surge in costs is being driven by several factors simultaneously. Prices of crude derivatives used widely in manufacturing and packaging have climbed by as much as 25% in the past month, while international freight rates have increased 7–10%. The rupee has also weakened by about 2% against the dollar, further raising the landed cost of imports. Companies say these pressures leave them little choice but to pass on some of the cost increases to consumers. As Kamal Nandi, head of the appliances business at Godrej Enterprises, told ET, “A price hike is inevitable.” He added that prices of appliances could rise around 5–6% from April because suppliers of plastic components are raising prices and refusing long-term contracts amid volatility.
Industry bodies warn that supply chain disruptions are also intensifying. Vinnie Mehta, director general of the Automotive Component Manufacturers Association of India, said delays in imports of key inputs such as chemicals, synthetic rubber and petrochemical-based materials are becoming more frequent as shipping routes are disrupted by the conflict. He told the publication that “the conflict in West Asia continues to create uncertainty.”
GST gains now at risk
The cost escalation comes at a time when companies had begun to benefit from stronger demand following the GST rationalisation. Lower tax rates across several product categories had reduced retail prices and encouraged consumption. Executives say the current cost shock could dilute some of that momentum. ET has reported chief executives across sectors warned that price increases could “erode some of the sales volume gains from recent GST reductions.” The dilemma for companies is that absorbing higher input costs would hurt margins while raising prices risks slowing the demand recovery that followed the tax cuts.
In sectors such as footwear, where crude derivatives are widely used in manufacturing materials, companies are already preparing for sharper price increases. Harkirat Singh, managing director of footwear brand Woodland, said suppliers are already asking manufacturers to raise prices because they are buying raw materials at much higher costs. The company could raise prices 8-12% from April if current conditions persist. Similarly, paint manufacturer Berger Paints India plans to raise prices around 5% for several products. Its chief executive Abhijit Roy told ET that the company is closely monitoring raw material prices and may need a second round of price hikes if costs continue to rise.
Consumer companies consider shrinkflation
Fast-moving consumer goods companies are facing a similar challenge as crude-linked costs surge. Industry executives say they are evaluating strategies such as reducing pack sizes or raising prices to offset the spike in costs of packaging and logistics. According to an ET report, the surge in crude oil prices above $100 per barrel has forced many companies to revisit pricing strategies.
Packaging is one of the biggest cost drivers because materials such as polyethylene and polypropylene are derived directly from crude oil. Executives say packaging alone can account for a significant share of product costs. Mayank Shah, vice president at Parle Products, said the industry is evaluating several responses if oil prices remain elevated. “Reducing grammage in small packs and increasing prices of bigger packs are options we are considering,” he said.
Industry executives say this strategy could effectively reverse the benefits consumers received after GST changes when companies increased pack sizes or reduced prices to pass on tax savings.
Energy shortages disrupt food manufacturing
The energy shock linked to the conflict is also beginning to affect production in some sectors. Packaged food manufacturers have already been forced to cut output because of an acute shortage of liquefied petroleum gas. Plants that rely on LPG as a primary fuel have halted or curtailed production, industry executives have told ET. The disruption has also affected supply of alternative fuels such as piped natural gas in some regions, highlighting the vulnerability of food manufacturing operations to energy supply shocks.
While companies are trying to shift to alternative fuels or adjust production schedules, executives warn that prolonged shortages could eventually affect supply availability and prices of packaged food products.
A resilient but fragile consumption outlook
Despite the emerging pressures, analysts still expect India’s consumer demand to remain relatively strong in 2026.
Research by BMI, a Fitch company, suggests household spending in India could grow 8.3% year on year in 2026, supported by rising incomes, improving employment conditions and expanding middle-class consumption. “Household spending in India will post strong growth over 2026, with real household spending (measured at 2010 prices) rising 8.3% y-o-y over the year.
The growth in consumer spending over 2026 will come as India’s wider economic growth continues and approaches a more stable medium-term (2026-2030) trajectory, supported by growing domestic demand brought about by the continuous expansion of the Indian middle class. Inflation will rise over 2026 but remain below the peaks of pre-pandemic levels. Strong recordings in real income growth for Indian consumers will further promote household spending growth.
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However the same report warns that inflation risks are rising due to the conflict in West Asia. The firm has raised its forecast for India’s headline consumer inflation to 5.1% in FY2026-27, partly reflecting the impact of higher oil prices and disruptions to shipping routes that carry roughly half of India’s crude imports.
Retail inflation rose 3.21% year-on-year in February from 2.74% in January, largely due to a low base effect and higher food prices. That was before the Iran war broke out. Economists expect March inflation to begin reflecting the impact of the Gulf conflict, which began February 28. higher LPG prices owing to global energy supply disruptions and rising gold prices could push inflation to 3.3-3.5% in March, Aditi Nayar, chief economist at ICRA, told ET. According to ICRA, every 10% increase in average crude oil prices could raise inflation by 40-60 bps, assuming full pass-through to retail fuel prices. Higher crude oil prices could also weigh on corporate profitability and household spending, posing a downside risk to GDP growth in FY27, said Nayar.
India’s GST rationalisation had provided an important demand stimulus by lowering prices and boosting consumption across several sectors. But the geopolitical shock emanating from West Asia is now testing that momentum. Rising input costs, supply disruptions and energy shortages are forcing companies to reconsider pricing and production strategies. For many businesses, the choice is between protecting margins and sustaining demand. For consumers, the risk is that the price relief delivered by tax cuts could gradually be offset by inflation driven by global energy shocks. If the conflict persists and oil prices remain elevated, the consumption gains from GST reform may prove more fragile than initially expected.