Even as the US and Iran are once again negotiating a peace deal, the West Asia conflict that has stretched on for nearly two and a half months is likely to leave huge repercussions on the Indian economy this fiscal year.

From the so-called Goldilocks phase of high growth and low inflation at the time of the presentation of the Union Budget on February 1, the domestic economic situation has seen a complete shift amidst the surge in global crude oil prices.

From the time the Budget was presented, when India was seen to grow by 6.8% to 7.2% this fiscal, with upside to growth projections, most economists and agencies believe that GDP growth will slow down and have revised their projections to anywhere between 6.5% and 6.9%. Another year of 7% growth in FY27, which was once seen to be within reach, now looks out of the question.

With the Centre hiking fuel prices for the fourth time in recent weeks, retail inflation is also likely to surge in the coming months. On Monday, petrol prices were increased by Rs 2.61 per litre and diesel by Rs 2.71 per litre.

Most agencies expect crude oil prices to average $90-95 per barrel this year and warn that commodity prices will also remain high, even if the war were to end immediately.

Retail inflation in India, which has been climbing steadily over the past few months, is now seen to average close to 5% this fiscal. CPI inflation was at a 14-month high of 3.48% in April, which was lower than anticipated, but it is seen to rise in May and June. But the wholesale price index-based inflation at 8.3% in April, indicating the impact of costlier energy and commodity prices.

This is also likely to be a key factor for the Reserve Bank of India when the monetary policy committee meets from June 3-5.

Along with a rising fuel bill, the surge in oil prices has also led to further depreciation in the rupee, and pressure is increasing on the fiscal and current account deficits. The fiscal deficit is seen to be higher than the Budget 4.3% in FY27 at about 4.7%-4.8%. The current account deficit is also seen to shoot up to 2% or more this fiscal. While this is worrying, analysts say it remains manageable.

Published on: May 25, 2026 12:22 PM IST