Parliament panel to study Indian economy amid West Asia conflict, GDP slowdown and commodity price swings

GDP growth outlook: 7.7% estimated for 2025-26, RBI forecasts 6.6% for current fiscal

The Indian economy is estimated to have grown at 7.7 per cent in 2025-26 (April-March), with a robust 7.8 per cent growth in the January-March quarter. India’s GDP had grown at 7.1 per cent in the 2024-25 fiscal year. However, the RBI estimates GDP growth to slow to 6.6 per cent in the current fiscal year as the ongoing conflict in West Asia pushes up the cost of fertiliser and fuel globally. India is a net importer of both crude oil and fertiliser, making it vulnerable to external price shocks.

Committee to seek inputs from Finance Ministry, RBI, economists and stakeholders

The committee is likely to seek inputs from the finance ministry, the Reserve Bank of India (RBI), economists and other stakeholders, before finalising its report containing its observations and recommendations. The examination is expected to cover topics including economic growth, inflation, employment, investment trends, fiscal management, banking sector developments, trade and the impact of global developments on India.

India is navigating a complex and increasingly volatile global environment marked by escalating geopolitical tensions, supply chain disruptions, trade uncertainties, and commodity price fluctuations that pose significant risks to its economic growth and household welfare.

The ongoing conflict in West Asia has triggered what the International Energy Agency calls “the largest supply disruption in the history of the global oil market,” causing sharp swings in crude oil prices and intensifying supply shocks in crude oil, natural gas and fertilisers—inputs India critically imports as a net importer of both crude oil and fertiliser. These energy market disruptions are transmitting volatility across commodity and financial markets, with crude prices witnessing sharp swings, equity markets weakening, bond yields hardening, and emerging market currencies facing depreciation pressures amid heightened risk aversion.

Global shocks raising inflation, import bills and market volatility

The Reserve Bank of India has flagged that the Middle East conflict is expected to create upside risks to inflation going forward, as elevated fuel costs and supply disruptions feed into domestic prices, with headline CPI inflation already picking up in February on account of food and beverages, particularly due to rising vegetable prices. Prime Minister Narendra Modi has warned that global uncertainty, particularly in energy and supply chains, could directly impact India’s economy and household costs, noting familiar pressure points including disrupted supply chains affecting goods movement, rising fuel costs pushing up prices of food and airfares, and broad-based inflation triggered by expensive oil.

The agricultural sector is under pressure from rising energy and input costs, while a weaker rupee combined with higher freight charges is increasing import bills, and Indians working in the Gulf face risks to remittances. Foreign portfolio outflows have intensified, with Indian stock indices experiencing their most significant monthly decline in almost a year in January largely due to ongoing uncertainties regarding the India-US trade agreement, causing the rupee to fall to an all-time low and marking its worst month in over three years. India’s current account deficit has widened marginally, largely due to a higher merchandise trade deficit, with imports particularly of petroleum products and gold increasing significantly.

While India’s foreign exchange reserves remain adequate to provide cushion against external shocks—covering about 11 months of import needs and giving India a buffer —concerns remain about how long the country can sustain itself on reserves as global uncertainty persists. Trade tensions with fresh investigations by the United States, coupled with the economic slowdown in advanced economies and a looming energy crisis arising out of the war, create adverse risks for India’s external sector, with a high probability of recession in the US and EU even as it remains uncertain how fast inflation will taper off.

Service exports may be affected if India’s growth remains ahead of the global average while the trade gap does not reduce substantially, especially if energy prices do not adjust. With continuing geopolitical tensions, erratic rainfall patterns and uncertain global growth prospects, commodity prices will remain risks for India in the near term. Despite these global headwinds, the Indian economy has demonstrated notable resilience, with GDP growth for 2025-26 remaining robust at an estimated 7.7 per cent driven by strong domestic demand, record agricultural output, strong automobile sales and steady services activity.

Resilient domestic demand supports growth outlook, but external risks and capital flow challenges could push GDP

India’s domestic growth engines—consumption and investment—remain relatively resilient, which has allowed India to maintain a positive economic outlook even as global demand for exports may weaken. However, the chief economic adviser has warned that significant and enduring corrections in financial markets or geopolitical events that disrupt commodity flow and impact global supply chains could hinder growth, bringing it closer to the lower end of the forecast range, with the RBI now estimating GDP growth to slow to 6.6 per cent in the current fiscal year.

The outlook remains cautiously optimistic but contingent on evolving global conditions, as domestic fundamentals such as strong consumption, investment activity and services growth continue to support economic expansion while external risks remain elevated. Historically, India has leveraged periods of global uncertainty to push reforms and attract investment, with the “Make in India” initiative positioning the country to benefit from global supply chain reconfigurations, but the road ahead will be challenging in terms of attracting capital flows as the cost of capital undergoes structural shifts and capital flows potentially slow down.

India navigates geopolitical tensions, supply chain disruptions and trade uncertainties

The committee’s study assumes significance at a time when India is navigating challenges arising from geopolitical tensions, supply chain disruptions, trade uncertainties and fluctuations in commodity prices, while seeking to sustain high economic growth. With global tariff policies and West Asia conflict affecting energy and input costs, the panel’s findings could shape policy responses to protect domestic growth and employment.

2026-27 agenda: Committee chair Bhartruhari Mahtani picks subjects spanning finance, corporate affairs, NITI Aayog and statistics

For the 2026-27 period, the Standing Committee on Finance, chaired by Bhartruhari Mahtani, has chosen subjects spanning across ministries, including Finance, Corporate Affairs, Planning (NITI Aayog) and Statistics. This multi-ministry approach reflects the committee’s intent to examine economic conditions through a broad lens, integrating fiscal, corporate, policy and data perspectives to inform its recommendations.