India’s economic growth for the 2026/2027 fiscal year could be lower than previously expected amid higher oil prices with the re-escalation of the Middle East war and the El Nino weather phenomenon, a senior official at the International Monetary Fund (IMF) told Reuters.
“The downside risks are probably twofold,” Ranil Salgado, the IMF’s resident representative for India and Bhutan, told Reuters in an interview published on Tuesday.
“One is that the war is already starting to expand again, and that has implications for oil prices,” the official said, adding that the other risk was El Nino, which could lead to a poor monsoon.
Earlier this month, the IMF cut its GDP growth forecast for India by 10 basis points, from 6.5% expected in April, to 6.4%, for the 2026/2027 fiscal year ending March 31, 2027, due to higher energy prices.
“High-frequency indicators through April are showing quite a bit of resilience in overall economic activity, but these positive effects are more than offset for 2026 by higher energy prices in our baseline July update, as well as greater pass-through of those prices to the pumps in India,” Deniz Igan, deputy chief of the Macro-Financial Division in the IMF’s Research Department, said in early July.
At the time, the U.S.-Iran ceasefire was mostly holding up, but collapsed days later. The renewed closure of the Strait of Hormuz and the escalation of hostilities in the region hiked oil prices by 16% in one week to nearly $90 per barrel Brent.
India has scrambled to contain the economic and financial impact of the worst oil supply disruption in history as analysts say the high oil prices would continue to weigh on the Indian currency, economic growth, and public finances as long as supply is choked at the Strait of Hormuz.
India, which imports more than 85% of the oil it consumes, received about half of all its imports from the Middle East before the war. Now, state-owned and private refiners are looking to diversify imports, including by taking in record volumes of Russian oil, and turning to Venezuela and Brazil for additional crude to offset the lost Middle Eastern supply.
By Michael Kern for Oilprice.com
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