India’s growth outlook for FY27 faces “considerable downside” risks amid escalating geopolitical tensions in West Asia, with chief economic adviser V. Anantha Nageswaran cautioning that fiscal priorities may need to be reshaped to shield the most vulnerable while preserving macroeconomic stability.
In the preface to the finance ministry’s Monthly Economic Review for March, released on Saturday, Nageswaran said the government’s earlier projection of 7–7.4 per cent GDP growth for FY27 now appears at risk. “Clearly, there is considerable downside to this number,” he noted, adding that clearer trends would emerge only from high-frequency data for April and May, as March figures would largely reflect year-end adjustments by businesses.
He also warned that higher import costs — driven by surging global energy prices — could dampen domestic demand and widen the current account deficit significantly in FY27.
War broke out in West Asia shortly after the release of the new GDP series (base year 2022-23), which triggered a spike in crude prices. Reflecting this shift, global brokerages have begun revising forecasts, with Goldman Sachs recently cutting India’s 2026 growth estimate by 110 basis points to 5.9 per cent.
Earlier this month, Nageswaran had told the Parliamentary Standing Committee on finance that crude prices up to $90 per barrel would have a limited macroeconomic impact. However, sustained levels around $130 per barrel for two to three quarters could push retail inflation to 5.5 per cent in FY27 and drag growth down to 6.4 per cent.
India’s crude basket price has already surged to $111.93 per barrel in March from $69.01 in February, intensifying pressure on the economy. The fallout has been visible across financial markets, with foreign investors pulling out $13.3 billion in March, the rupee weakening over 4 per cent against the US dollar since the conflict began, and closing at 94.81 on Friday. Bond yields have climbed on inflation concerns, while equity markets have declined.
Nageswaran identified four key transmission channels through which the conflict could impact India: supply disruptions in oil, gas, fertilisers and exports; elevated import prices; rising logistics costs; and a potential drop in remittances from Indians working in Gulf economies. The combined effect on growth, inflation, fiscal balances and the external account, he said, is “likely to be significant”.
While a ceasefire and reopening of the Strait of Hormuz would be “profoundly positive”, he cautioned that uncertainties around damage to energy infrastructure and timelines for restoring supply remain critical. For planning purposes, he advised assuming a gradual normalisation rather than a swift recovery.
The CEA also underscored the need to reprioritise government spending. He called for immediate, targeted relief for vulnerable households and businesses, alongside efforts to build long-term strategic buffers in key commodities beyond energy.
Notably, his remarks were made on March 25, before the Centre’s decision on Friday to cut the Special Additional Excise Duty on petrol and diesel by ₹10 per litre each. The move aims to prevent a rise in retail fuel prices and ease pressure on oil marketing companies, but is expected to cost the exchequer about ₹7,000 crore in revenue every fortnight.