India’s growth outlook for FY27 faces “considerable downside risk” due to the ongoing West Asia crisis, Chief Economic Advisor V Anantha Nageswaran has cautioned. He also called for a re-prioritisation of government spending and targeted relief for vulnerable sectors in light of the ongoing war in the Gulf.
In the preface to the Monthly Economic Review (MER) prepared by the Department of Economic Affairs, Nageswaran said that while India’s GDP growth projection for FY27 was recently revised upward to 7-7.4% following the base year update, the evolving geopolitical situation could significantly weigh on the outlook.
“Clearly, there is considerable downside to this number. Data for March will not reveal much, since businesses are trying to meet full-year targets for FY26. High-frequency data for April and possibly May may give us a better handle on the likely growth rate for the new financial year,” the CEA said. He also flagged that the current account deficit is likely to widen significantly in FY27.
Nageswaran outlined four key transmission channels through which the conflict could affect the Indian economy. These include supply disruptions in critical commodities such as oil, gas and fertilisers, along with potential export disruptions; rising import prices; higher logistics costs including freight and insurance; and a possible decline in remittances from Indians working in Gulf countries.
“The combined impact across the four channels on growth, inflation, the fiscal balance, and external balances is likely to be significant,” he said.
He emphasised the need for immediate support to the most affected businesses and households, alongside building fiscal space to address long-term strategic vulnerabilities exposed by the crisis. “This calls for re-prioritisation of spending and targeted relief,” the CEA said, underlining the importance of creating buffers in key commodities beyond energy.
What else did MER point to?
India’s economy is flashing mixed signals for March 2026. According to the MER, e-way bill generation dipped 5.3% month-on-month through March 22, though it stayed 9.4% above year-ago levels, while Flash PMI data point to slowing output growth following the recent energy price shock.
However, domestic demand is holding up. Vehicle registrations jumped 19.1% year-on-year through March 24 and digital payments maintained double-digit growth. Rural consumption improved even as sentiment softened marginally.
The Monthly Economic Review warned that sustained high oil and gas prices could trigger broader second-round inflationary effects, compounding supply-side cost pressures already building across sectors.
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