Just as India steps into a new fiscal year, its economic growth forecasts have been pared to 6 percent or lower, thanks to the ongoing conflict in West Asia that has triggered volatility and uncertainty in commodity prices and capital flows. The sharpest correction came from Goldman Sachs, which reduced India’s real GDP growth forecast to 5.9 percent for calendar year 2026, as against its pre-Gulf-war prediction of 7 percent. The IMF revised its growth estimate to 6.5 percent and, with crude oil prices remaining volatile, increased its inflation estimate to 4.7 percent from below 4 percent. Despite the revisions, most forecasters expect inflation to remain within the RBI’s tolerance band of 2-6 percent. But more than rising prices, concerns regarding the overall economic momentum are deepening. As Gita Gopinath, professor of economics at Harvard University, noted in an interview, longer global supply disruptions will derail production cycles in India and its consequences will be too tough to handle.
For now, analyst forecasts are centred on short-term volatilities. But if geopolitical tensions continue unabated beyond May or June, it could trigger a sharp rise in commodity prices and freight costs. A prolonged rise in prices will push up inflation and interest rates, besides weakening global demand for goods and services, affecting exports, remittances and tourism flows. And if the Hormuz Strait’s near-complete shutdown stretches longer than the initial expectations, the supply disruptions will unleash a global economic mayhem. As Gopinath explained, the oil benchmark is expected to hover at $80-85 a barrel for the rest of 2026; but if the average crosses $100 and the conflict stretches into May-June, there will be serious impact on all economies.
Besides price rise and supply shocks, the war could impact employment and investment sentiment, with weaker business confidence weighing on consumption and growth. As it is, the manufacturing sector is still coursing through structural labour market challenges, with job creation hovering below pre-pandemic levels across many Asian economies. This is a double whammy for India, whose economic activity moderated in the second half of 2025-26 as exports to the US fell by 25 percent due to tariff concerns. As one UN report noted, India must strengthen domestic demand and productivity, and improve employment while expanding social protection to the poor.