NEW DELHI, Mar 31: India’s economic growth for the next fiscal year, FY27, could be reduced by approximately one percentage point, and retail inflation may increase by about 1.5 percentage points from current projections if the ongoing Middle East conflict continues throughout the fiscal period, according to a report by the consulting firm EY.
Economic Impact Assessed
The EY Economy Watch report highlights that several industries, particularly those with significant employment bases such as textiles, paints, chemicals, fertilizers, cement, and tires, are susceptible to direct disruption. A decline in employment or income within these sectors could further weaken overall demand. Consequently, both the supply and demand sides of the economy are expected to be unfavorably affected by disturbances in the global oil markets.
Information was available with The Chenab Times indicating that the Indian economy, which relies on imports for nearly 90 per cent of its crude oil needs, is also heavily dependent on imported natural gas and fertilizers. This vulnerability makes it particularly susceptible to external shocks, with potential adverse effects cascading across various sectors due to strong interconnections with crude oil and energy markets.
Vulnerability to Oil Market Shocks
The protracted conflict in the Middle East has already caused considerable disruption to global crude oil and energy markets, impacting supply, storage, transportation, and pricing. The report notes that even if the conflict is resolved in the short term, a normalization of these disrupted conditions could take a significant amount of time.
Projected Growth and Inflation Figures
The EY Economy Watch report stated, “If the impact persists throughout FY27, we estimate that India’s real GDP growth could erode by around 1 percentage points, while CPI inflation could rise by approximately 1.5 percentage points from their baseline estimates of 7 per cent and 4 per cent respectively.” Earlier, in its February report, EY had projected India’s GDP growth for the 2026-27 fiscal year to be between 6.8 and 7.2 per cent.
Government Policy Considerations
In response to these potential economic headwinds, the Government of India may need to implement substantial countercyclical policies. The report suggests that it would also be prudent for the government to collaborate with larger and more industrialized states in these countercyclical efforts. EY also recommended making additional provisions to bolster the Economic Stabilization Fund (ESF), which was introduced by the government in FY26.
The Indian government has already established an ESF with a corpus of Rs 1 lakh crore, intended to serve as a financial buffer against global economic uncertainties.
Global Oil Price Trends
Global crude oil prices have seen an increase of nearly 50 per cent since military actions were initiated against Iran in late February. This escalation has triggered significant retaliatory responses from Tehran, contributing to market volatility.
Broader Economic Outlook
The Organisation for Economic Cooperation and Development (OECD) had previously projected that India’s GDP growth would moderate to 6.1 per cent in the upcoming fiscal year, a decrease from the estimated 7.6 per cent growth in the current financial year. This forecast also underscores the potential impact of geopolitical events on the Indian economy.
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The Chenab Times News Desk
