FinMin flags growth risks for India as Middle East war ups energy costs

Economic Outlook - The conflict in West Asia has disrupted a key global shipping route that carries nearly 20% of the world's oil, leading to increased energy and freight costs, and additional strain on supply chains [1][10] - India's economic outlook is under increasing pressure, with economists warning of a potential 50-60 basis point hit to FY27 growth due to the conflict [6][10] - Ratings agency ICRA has revised its FY27 growth forecast down to 6.5% from 7.1%, assuming an average crude price of $85 per barrel, compared to an earlier estimate of $70-75 [6][11] - HDFC Bank and IDFC First Bank have also lowered their growth projections for FY27 to 6.5-7% and 6.9-7% respectively [11] Inflation and Current Account Deficit - The current account deficit has widened to 1.3% of GDP in the Oct-Dec quarter and is expected to worsen in the next fiscal year [2][10] - The input price index reached a near four-year high of 59.2 in March, indicating rising inflation pressures across a wide range of raw materials [8][11] - Economists expect wholesale and retail inflation to average around 4-5% each in FY27, with wholesale inflation rising 2.13% in February and retail inflation at 3.21% [9][11] Domestic Demand and Supply Chain Risks - Domestic demand has remained relatively stable, but risks to growth are rising, particularly in sectors reliant on imported inputs [5][10] - If supply disruptions persist beyond the first quarter of FY27, there could be a 50-basis point downside risk to growth forecasts [9][11]