India’s economic growth is expected to moderate in 2026-27 amid the ongoing West Asia conflict, with GDP projected at 6.6% compared with 7.1% projected earlier. Retail inflation is projected to rise to an average of 5.1% from 2% in FY26, according to S&P Global’s “India Forward” report.

The report highlights that the conflict is exerting broad-based pressure on key macroeconomic indicators, including growth, inflation, current account balance and bond yields. Elevated crude oil prices—expected to stabilise around $90-95 per barrel—are seen as a key transmission channel affecting the economy.

What do economists say?

Dharmakirti Joshi, chief economist at Crisil, said growth could slow from 7.6% last year to 6.6% in 2026-27, while inflation may rise sharply from around 2% in 2025-26. The current account deficit is projected to widen from 0.8% of GDP in FY26 to 2.2% in FY27, with bond yields remaining near 7%. “The longer the conflict persists, the greater the downside risks to growth and upside pressures on inflation,” he said.

The Middle East crisis has emerged as one of the most significant external shocks for India in recent years, triggering a surge in energy prices and disrupting supply chains, freight costs and fertilizer availability. Its overall impact will depend on the scale and duration of the conflict, Joshi said.

India’s strong economic linkages with the region heighten vulnerability. The Middle East accounts for nearly half of India’s oil imports and remains a crucial supplier of gas, fertilisers, and industrial inputs. It also represents 22% of India’s imports and 13% of exports, with key sectors such as petroleum products, gems and jewellery, and agricultural commodities heavily exposed.

Higher energy costs are expected to feed into inflation through both direct and second-round effects, including increased transportation and logistics expenses. Risks from heatwaves and uneven monsoon rainfall may further push up food prices.

The report also flags pressure on public finances due to rising subsidies and limited monetary policy flexibility. However, it notes that the ongoing shock presents an opportunity for India to accelerate structural reforms, including energy diversification, domestic fertiliser capacity, and electric mobility, to strengthen long-term resilience.