West Asia crisis brings energy shock, downside risk for India: Crisil

The West Asia conflict is a major downside risk for India, warns a Crisil report. It predicts slower GDP growth (6.6%), a wider current account deficit (2.2%), and a sharp rise in inflation (5.1%) for fiscal 2027 due to a major energy shock.

The ongoing West Asia conflict has begun materializing as a major downside risk for the Indian economy, severely impacting international trade and inflating import costs. According to a report by Crisil Intelligence, "The downside risks to the economy have begun materializing with over two months of unresolved West Asia conflict."

The agency further noted that, "The closure of Strait of Hormuz has created the largest energy shock on record. This will take time to normalise because of the damage to oil and gas infrastructure in West Asia, even after the route reopens."

The economic fallout is expected to hit India's import-dependent manufacturing sector particularly hard, while weaker global demand and trade bottlenecks stifle export growth.

Economic Projections Show Strain

As a direct consequence of these compounding external pressures, India's macroeconomic indicators show signs of strain. The report noted that the real gross domestic product (GDP) growth is projected to slow down to 6.6 per cent in fiscal 2027, compared to the 7.6 per cent growth recorded in fiscal 2026. Simultaneously, the country's current account deficit (CAD) is projected to widen significantly to 2.2 per cent of GDP in fiscal 2027 from an estimated 0.8 per cent in the previous fiscal year.

Trade and Remittances at Risk

"The spike in international crude, gas and fertilizer prices is expected to raise import bill significantly while exports are expected to be hit from a global trade disruption and weakening global demand. Remittances face a risk from continuing tensions in West Asia, which accounts for ~38% of remittances to India," the report noted.

Domestic Inflation Feels the Heat

Domestic inflation feels the heat of the geopolitical friction as well, with average consumer price index (CPI) inflation expected to climb sharply to 5.1 per cent in fiscal 2027 from 2.0 per cent in fiscal 2026. This surge is driven by producers passing on elevated energy and transportation costs to consumers.

"While the government has limited rise in retail fuel inflation so far, a persistent rise in global prices could see retail fuel prices for cooking and transportation climb up further. Additionally, a sharp rise in energy and other input costs, as well as those for trade and transportation, is expected to be passed by producers to consumers, raising core inflation," the report observed.

Global Commodity Shock and Broader Impact

The severe disruption in the energy corridor forced a major revision in global commodity forecasts, with Crisil Intelligence raising its Brent crude price forecast to USD 90-95 per barrel for fiscal 2027, up from the earlier projection of USD 82-87 per barrel. This escalation extends far beyond energy, introducing multidimensional economic pressures.

"Additionally, the shock extends beyond energy to freight and insurance costs, supply chains, and fertilisers, which have a multidimensional impact on the economy," the report added.

(ANI)

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