The finance ministry has no plan to alter its latest 7-7.4% growth forecast for FY27, which was raised by 20 basis points only last Friday, one of the officials told ET.
To be sure, both the ministry and financial sector regulators have intensified monitoring of the fast-unfolding scenario and its wider ramifications, anticipating strong swings across equities, commodity, and currency markets, the official said.
“The next two weeks would be very crucial, when the picture will be clearer,” the first official said. “But there should be no undue concerns over these things either.”
India’s strong macroeconomic fundamentals will continue to cushion the economy from external headwinds, according to the official.
“Management of market volatility is going to be the most important task,” said a regulatory official.
Also Read | India firmly opposes attacks on merchant shipping, says Middle East conflict evokes ‘deep anxiety’Iran’s retaliatory strikes on several oil-producing West Asian nations that house US military bases or are western allies including the UAE, Saudi Arabia, Qatar, Iraq, and Bahrain have raised the spectre of a wider and protracted regional conflagration. The killing of Iranian supreme leader Ayatollah Ali Khamenei and some key military commanders have further complicated the situation.
Experts said global trade volumes may be rerouted, and shipping costs may skyrocket amid reports that Iran has threatened to close the Strait of Hormuz, a vital passage connecting the Persian Gulf to the Arabian Sea, accounting for about a fifth of global crude oil supply.
Global prices of crude and other energy products are poised to rise, impacting India’s trade deficit. This will weigh on the rupee, pressure inflation, and potentially exacerbate the current account deficit. India met about 88% of its oil requirements through imports in FY25.
Also read: For India, much more at stake than just oil this time
Strong macro fundamentals
To be sure, given subdued domestic inflation, price pressure is unlikely to shoot uncomfortably, said the official cited earlier. “India’s strong macro-economic stability is going to come in handy in such situations,” he said.
Retail inflation, based on the revamped consumer price index, hit 2.75% in January, well within the central bank’s tolerance band of 2-6%.
As such, India’s economic growth has ranged between 7.1% and 7.6% since FY24, according to the new gross domestic product series released on Friday.
The growing tensions could also dent capital flows into India in the short term, as global investors may move towards safe-haven assets such as gold. The conflict has already disrupted flight operations in several key destinations, including Dubai, Doha, and Abu Dhabi.
Brent crude oil futures rose 2.9% to $72.87 per barrel on Friday, before the joint strikes on Iran on Saturday. The prices are up about 6% since the start of February.
Meanwhile, gold futures in the US inched up 1% to $5,247.90 per troy ounce on Friday. Given its safe haven status, gold prices are expected to rise further in the coming days due to the conflict.