India economy resilient but faces rising risks from Mideast war

[NEW DELHI] India’s economy remains resilient but faces mounting risks from the Middle East conflict, which has disrupted supplies of energy, fertilisers and industrial raw materials, raised costs and weakened trade, the government’s monthly economic report said on Wednesday (Apr 29).

“India enters FY2026-27 at the intersection of domestic resilience and external turbulence,” the report said, adding that the West Asia war has altered the macroeconomic outlook following real GDP growth of 7.6 per cent in the previous fiscal year.

The government said India remained a relative bright spot, with the International Monetary Fund raising its 2026-27 growth forecast for the country to 6.5 per cent from 6.4 per cent.

However, it warned that risks were tilted toward higher inflation, wider fiscal and external deficits and slower growth, especially if energy and fertiliser supply disruptions persist.

The report said India’s crude oil basket averaged US$113 per barrel in March and was just under US$115 per barrel this month through April 24. It added higher wholesale prices showed that cost pressures were building, even though consumer inflation remained moderate.

Retail inflation rose to 3.4 per cent in March from 3.2 per cent in February, while food inflation increased to 3.87 per cent. Wholesale inflation accelerated to 3.88 per cent in March from 2.13 per cent in February, reflecting rapid transmission of higher energy and commodity prices at the producer level.

“The risks are tilted toward persistence rather than quick reversal of the price pressures,” the report said.

Trade also weakened in March, with merchandise exports down 7.4 per cent year-on-year and 24 of 30 major export categories declining. Exports to the United Arab Emirates and Saudi Arabia fell sharply as the Strait of Hormuz blockade raised freight, insurance and logistics costs.

The report said remittances, which reached a record US135.4 billion in FY25, could come under pressure if a prolonged conflict weakens Gulf labour markets.

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India’s unemployment rate rose to 5.1 per cent in March from 4.9 per cent in February, though the report said labour conditions have broadly stabilised, while confidence in future job prospects has weakened, particularly in urban India. REUTERS