Economists at banks including Goldman Sachs Group, Australia and New Zealand Banking Group and IndusInd Bank Ltd. expect slower growth due to reliance on imported oil. Goldman last week cut its 2026 growth forecast by half a percentage point to 6.5% while ANZ sees expansion slowing to 6.5%-6.8%, in the fiscal year starting April from about 7%. IndusInd Bank’s Gaurav Kapur sees a 30-basis-point hit with growth at around 6.5% and warns weaker consumption could weigh on the recovery.
“The overall impact on growth will be more dampening than inflation,” Kapur said. “The government has enough fiscal space to absorb the oil price hit through excise duty cuts, but the hit on the industrial sector will impact growth.”
The conflict thousands of miles away is already affecting daily life in India.
Satyabhan Singh, 35, a food delivery driver, says his daily income has fallen by more than half to about 800 rupees ($8.65) as fuel costs rise. He now spends 300 to 400 rupees a day on petrol, meaning any increase in pump prices could wipe out what little he earns.
“The government should make some arrangements for us,” Singh said. “When there is no gas, they should ensure we can still earn enough to survive.”
Gig work such as food delivery has become one of India’s fastest-growing sources of employment, with the workforce rising to about 12 million by March 2025 from 7.7 million in March 2021, a 55% increase, according to the government’s Economic Survey.
Gas rationing is disrupting key industries, from fertilizer and aluminum production to helium used in semiconductor manufacturing, raising the risk of a prolonged drag on growth.
“All heating furnaces use LPG and, given the shortage and curbs on industrial use, factories have shut,” said Pankaj Chadha, chairman of the Engineering Exports Promotion Council. “In Gujarat, about 98% of engineering firms are shut, while in Maharashtra around half the units have closed.”
Before the crisis, India’s economy appeared to be in a sweet spot. The government projected growth of as much as 7.2% for the next financial year, while inflation was expected to stay close to the Reserve Bank of India’s 4% target at least until September.
Reserve Bank of India Governor Sanjay Malhotra had described the outlook as a “Goldilocks” scenario, with interest rates likely to remain unchanged for an extended period. The external sector has held up relatively well recently, though rising oil prices and a wider trade and current account deficits are emerging risks.
“The external sector has emerged as the most at risk in this crisis” said Anubhuti Sahay, economist with Standard Chartered Plc. “While import cover is still about 10 months, the rupee has to act as the shock absorber.”
Exports may suffer as disruptions hit nearly $200 billion of shipments to Gulf countries, potentially widening the current account deficit and putting pressure on the rupee, already near record lows of around 92.5 per dollar. The region is also critical for remittances, with about 10 million Indian workers sending nearly $50 billion home annually.
Economists warn the inflation surge could undo years of efforts by the Reserve Bank of India, which brought price growth under control last year. The central bank had expected retail inflation to remain near its 4% target until at least September.
“Ripple effects would be felt across industries,” including restaurants and manufacturing units reliant on liquefied petroleum gas,” said Shumita Deveshwar, chief economist at GlobalData.TS Lombard. Inflation could accelerate to about 6% by September or October, she added.
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