India’s economy remains resilient to the external shocks, but the oil price surge amid the global supply disruption poses near-term downside risks to economic growth and upside risks to inflation, the Reserve Bank of India (RBI) said in its Annual Report for 2025-26 published on Friday.
“Against the backdrop of a moderate global growth, the outlook for the Indian economy in 2026-27 remains positive, supported by strong macroeconomic fundamentals, although a prolonged West Asia conflict may pose downside risk,” economists at India’s central bank wrote in the report.
Assuming that the adverse impact of the Middle East conflict would remain contained in the near term, India’s real GDP growth for 2026-27 ending March 2027, is projected at 6.9% with risks tilted to the downside, they noted.
In the 2025-2026 fiscal year, India remained the world’s fastest-growing major economy, expanding at 7.6%, with headline inflation at 2.1%, the central bank said.
“However, the evolving upside risks to inflation may emanate from multiple other factors such as spike in global fuel and commodity prices amid geopolitical tensions, potential spillovers to input and wage costs, and volatility in exchange rate,” the bank noted.
“Considering all these factors, CPI inflation for 2026-27 is projected at 4.6 per cent with risks tilted to the upside.”
The world’s most populous country has been suffering from the crisis, which has crippled not only its crude supply, but also those of the main cooking fuel, liquefied petroleum gas (LPG). Oil marketing companies in India have just raised fuel prices for the fourth time in less than a month, after holding off on price hikes for two months after the war began.
India’s economic pains are intensifying every day that the Strait of Hormuz remains closed. One of the highest-performing emerging markets in recent years is scrambling to contain the oil shock that is spreading to consumer prices, foreign exchange reserves, current accounts, and economic growth.
By Charles Kennedy for Oilprice.com
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