The Iran-US war is impacting India’s economy across multiple fronts – from LPG gas availability to spike in food prices, the crude supply disruption due to the Middle East conflict and the prices continuing above the $100/bbl mark continue to be a key concern. The key question is how would all this impact growth. Nomura expects India’s growth to ease 7.3% in Q1FY27 compared to the previous quarter.
For the full year, though, the international brokerage house sees growth picking up to 6.8%, higher than the consensus estimate of 6.4%. According to Nomura, the GDP growth for India is expected to ease further to around 6.3–6.7% in H1FY27. However, growth is likely to pick up in the second half of FY27 to around 7.1–7.2%.
Here are key factors impacting India’s growth-
1. Supply disruptions hit industry, demand remains resilient: Nomura
Nomura noted that supply disruptions have begun to hurt key sectors of the economy. Natural gas shortages and rationing have impacted industrial production, especially in infrastructure-linked sectors. However, demand-side has held up.
“Consumption indicators continue to exhibit resilience, with sales of passenger vehicles, two-wheelers and tractors robust in March, alongside higher GST collections. Sales of MHCV (medium and heavy commercial vehicles) – typically a barometer of investment activity – have also held up… Petrol and diesel consumption remained robust, amid unchanged fuel prices,” Nomura noted.
2. Gas shortages hit infrastructure output
Due to the Iran war, the government, in early March, diverted gas supply to households and transport while cutting supply to fertiliser companies and other industries.
Although gas allocation to fertilisers was later increased, the shortage hit infrastructure output. Growth in the sector fell to -0.4% in March from around 4% in the previous months.
Production declined in fertilisers, crude oil, coal and electricity, while cement and steel growth slowed.
Gas shortages are also likely to drag manufacturing output in March and April. At the same time, aviation passenger and cargo traffic declined, reflecting war-related disruptions.
3. Iran war disrupts shipping, hits exports
The blockade of the Strait of Hormuz and disruption in global shipping routes due to the Iran war have impacted India’s external sector.
Merchandise exports fell 7.4% year-on-year in March, after declining in February as well.
Exports to the Middle East dropped significantly, with shipments to Saudi Arabia and the UAE plunging 58%, mainly due to disruptions in Persian Gulf shipping routes. Key sectors such as textiles, chemicals, electronics and gems and jewellery reported broad-based weakness.
Conclusion
Middle East war, which has led to supply chain disruption and LPG shortage has hurt key sectors of the economy. However, Nomura said that the demand side has remained strong till now.
Despite saying this Nomura warns of few risks: “First, these are still early days, and the longer the disruptions last, the more potential there is for a non-linear impact. Second, with oil prices still elevated as tensions persist, oil marketing companies (OMCs) face higher under-recoveries.”
Nomura also noted that although the government has pushed back against a potential fuel price hike, any increase after the state elections could intensify the inflationary pass-through to growth.