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02-05-2026
Bureau Report
NEW DELHI: India’s economy remains resilient but faces mounting risks from the Middle East conflict, which has disrupted supplies of energy, fertilizers and industrial raw materials, raised costs and weakened trade, the government’s monthly economic report said on Wednesday.
“India enters FY2026-27 at the intersection of domestic resilience and external turbulence,” the report said, adding that the West Asia war has altered the macroeconomic outlook following real GDP growth of 7.6% in the previous fiscal year. The government said India remained a relative bright spot, with the International Monetary Fund raising its 2026-27 growth forecast for the country to 6.5% from 6.4%.
However, it warned that risks were tilted toward higher inflation, wider fiscal and external deficits and slower growth, especially if energy and fertilizer supply disruptions persist.
The report said India’s crude oil basket averaged $113 per barrel in March and was just under $115 per barrel this month through April 24. It added higher wholesale prices showed that cost pressures were building, even though consumer inflation remained moderate.
Retail inflation rose to 3.4% in March from 3.2% in February, while food inflation increased to 3.87%. Wholesale inflation accelerated to 3.88% in March from 2.13% in February, reflecting rapid transmission of higher energy and commodity prices at the producer level.
“The risks are tilted toward persistence rather than quick reversal of the price pressures,” the report said.
Trade also weakened in March, with merchandise exports down 7.4% year-on-year and 24 of 30 major export categories declining. Exports to the United Arab Emirates and Saudi Arabia fell sharply as the Strait of Hormuz blockade raised freight, insurance and logistics costs.
The report said remittances, which reached a record $135.4 billion in FY25, could come under pressure if a prolonged conflict weakens Gulf labor markets.
India’s unemployment rate rose to 5.1% in March from 4.9% in February, though the report said labor conditions have broadly stabilized, while confidence in future job prospects has weakened, particularly in urban India.
Meanwhile, India’s retail inflation rose modestly to 3.4% in March, government data showed on Monday, amid worries that a prolonged Middle East war and deficient monsoon showers could raise the cost of living over the coming months.
A prolonged Middle East conflict threatens to hurt India’s economy while raising inflation as the country imports about 90% of its oil. India is also likely to see below average annual monsoon rains for the first time in three years, stoking concerns over farm output.
Last month, New Delhi slashed taxes on petrol and diesel to shield consumers from higher global prices.
“March inflation numbers were modestly higher, signaling the first round of price pressures in wake of the Middle East crisis,” Radhika Rao, economist at DBS Bank, said. The impact of higher energy prices will gradually percolate in the coming months as alternative energy supplies arrive with a lag, with risks of a fuel price increase in the coming weeks, Rao said.
The US military is set to begin a blockade of ships leaving Iran’s ports and Tehran has threatened to retaliate against ports of its Gulf neighbors, after weekend talks between the two parties failed to reach a deal to end the war, leaving a ceasefire in jeopardy.
