The Indian economy may take a hit of up to 1 percentage point in the next financial year due to the West Asian war, according to the EY Economy Watch report.
Retail inflation may also surge by an additional 1.5 percentage points from baseline estimates if the war continues through the next fiscal, it added.
The impact is largely being driven by India’s heavy dependence on crude imports and the resulting vulnerability to global energy shocks.
“If the impact persists throughout FY27, we estimate that India’s real GDP growth could erode by around 1 percentage point, while CPI inflation could rise by approximately 1.5 percentage points from their baseline estimates of 7 percent and 4 percent, respectively,” the EY Economy Watch report said.
According to the report, several sectors, including employment-intensive sectors like textiles, paints, chemicals, fertilizers, cement, and tyres, could be directly impacted.
Aggregate demand of the economy would be impacted if wage reduction or job losses happen in these sectors.
Crude oil prices have surged sharply since the outbreak of hostilities, with the Strait of Hormuz facing significant disruptions. A key global energy transit route, nearly 20 percent of the world’s oil supply passes through the strait.
The current blockade of the strait by Iran is a major concern for import-dependent economies like India.
Higher oil prices may trigger elevated inflation, widening current account deficits, and pressure on the rupee. These factors could, in turn, dampen consumption and investment demand across the economy.
The subdued forecast by the consultancy is in continuation of previous such anticipations, with Goldman Sachs and ICRA already downgrading the growth prospects of the Indian economy owing to the impact of the war.
Recent trends already reflect the impact. Foreign investors have pulled out record sums from Indian markets amid rising oil prices and currency volatility, while business activity has slowed to multi-year lows due to weaker demand and higher input costs.
