The ongoing West Asia crisis could pose a considerable downside risk to India’s GDP growth in FY27, says the finance ministry in its latest Monthly Economic Review, even as it flagged higher inflation concerns.
“We upgraded India’s growth estimate (at constant prices) for FY27 to a range of 7-7.4%. Clearly, there is considerable downside to this number. Data for March will not reveal much, since businesses are trying to meet full-year targets for FY26,” it said in its March economic review.
The ministry identified four key channels through which the conflict could affect the Indian economy -- supply disruptions to oil, gas and fertilizers, higher import prices, higher logistics costs and a possible decline in remittances by Indians in the Gulf countries. According to the Ministry, the fuel shock is also expected to have a trickle-down effect on inflation, raising input and transportation costs across sectors.
Not only does it trigger inflation, the crisis will also have a significant impact on the overall export, says the ministry. With crude imports accounting for nearly one-fourth of India’s total imports, the spike in global prices — from about $69 per barrel to over $110 per barrel as of March 20, 2026 — can also widen India’s merchandise trade deficit.
Retail inflation rose to a 10-month high of 3.21% in February 2026, driven primarily by a sharp uptick in food prices, while most other categories remained broadly stable. “The current inflation numbers do not yet reflect the potential impact of rising crude oil prices, which pose an upside risk going forward,” says the ministry.
The ministry further flagged risks to remittance inflows. With Gulf Cooperation Council (GCC) countries, accounting about 38% of India’s total remittances in 2023-24 and host nearly half of Indian migrants, any sustained rise in crude oil prices could weigh on fiscal conditions in these economies and, in turn, moderate remittance growth in the near term, said the report.
The ministry stressed the need for immediate targeted relief for vulnerable households and businesses and at the same time emphasized the need for creating fiscal space and building long-term buffers in critical commodities. Thus, “re-prioritisation of spending and targeted relief for the most affected and vulnerable businesses and households” is the need of the hour, stated the ministry.
According to the ministry, the government has undertaken a range of measures to manage supply disruptions, ensure energy availability, support trade and logistics, and maintain overall economic stability. “While these interventions, along with existing macroeconomic buffers, provide some support, the balance of risks remains tilted to the downside,” it said.