India has flagged significant downside risks to its growth forecast of 7.0%–7.4% for the financial year ending March 2027, citing rising energy costs and supply-chain disruptions caused by the Iran war, which began on February 28 following U.S. and Israeli strikes on Iran [1]. The conflict has disrupted goods movement through the Strait of Hormuz, a critical waterway responsible for transporting 20% of global oil, leading to increased energy and freight costs and strained supply chains [1].
India's Chief Economic Adviser V. Anantha Nageswaran stated that the trade deficit will rise significantly in the next financial year, resulting in a widening current account deficit. He emphasized that managing this will require burden-sharing between the government, households, and businesses, while the pass-through of higher import prices to end-users will moderate demand growth [1]. Despite these pressures, the Indian government has so far resisted passing rising energy costs to consumers. On March 28, it cut central excise duties on petrol and diesel for domestic consumption by 10 rupees ($0.11) per liter each to prevent pump prices from rising, and raised duties on exports of diesel and aviation turbine fuel to ensure adequate domestic availability [1]. Finance Minister Nirmala Sitharaman stated that these measures aim to protect consumers from price increases, though Petroleum and Natural Gas Minister Hardeep Singh Puri noted this will negatively impact tax revenues [1].
According to a note from global brokerage Nomura, if crude oil prices remain elevated, pump prices will eventually be increased, but such a move is likely to occur after the state elections scheduled for April, with final results on May 4 [1]. India relies on the Strait of Hormuz for about 50% of its crude oil needs and imports most of its liquefied petroleum gas (LPG) through this route, making alternative supplies costly and delayed. The finance ministry highlighted that LPG is particularly difficult to replace due to low domestic refinery yields and heavy reliance on conflict-hit regions [1].
Nageswaran added that if demand moderates in response to higher prices, the central bank may treat the inflationary impact as a supply shock. The Reserve Bank of India (RBI) is set to announce its latest monetary policy decision on April 8 [1]. India's crude basket cost has risen from below $80 to about $140, further underscoring the inflationary pressures and risks to growth [1].
CONCLUSION
India faces heightened economic risks due to the Iran war's disruption of energy imports, with growth forecasts under threat and a widening trade deficit expected. The government's efforts to shield consumers from rising prices may strain fiscal revenues, while elevated crude costs and supply-chain challenges pose ongoing inflationary risks. Market participants will closely watch the RBI's upcoming policy decision and potential post-election price adjustments.