Mumbai, March 10 An escalating conflict in West Asia could pose downside risks to India's economic growth outlook if the conflict persists, according to a report by ICRA.
The rating agency said it expects India's real GDP growth to be around 7.1 per cent in FY2027, slightly lower than the 7.6 per cent estimated for FY2026, supported by resilient domestic demand, improving investment activity, and continued government capital expenditure.
However, prolonged geopolitical tensions in the region could impact growth through higher crude oil prices and inflationary pressures.
The ongoing conflict has led to disruptions in shipping routes around the Strait of Hormuz, a key global energy corridor, raising concerns over potential supply disruptions and higher freight costs.
West Asia remains a significant trade partner for India, accounting for around 14 per cent of exports and nearly 21 per cent of imports, making the country vulnerable to disruptions in trade flows and energy supplies if tensions escalate further.
"As a result, the conflict poses meaningful risks to India's trade flows, particularly in the form of higher freight costs, supply delays, and uncertainty over energy supplies," the report said.
According to ICRA, a USD 10 per barrel increase in crude oil prices could widen India's current account deficit by 0.30-0.40 per cent, while also pushing up wholesale and consumer price inflation. Higher fuel costs could dampen consumption demand and weigh on overall economic activity.
The agency's baseline projections assume crude oil prices averaging USD 70-75 per barrel in FY2027, which could keep the current account deficit at around 1 per cent of GDP.
However, if prices rise to USD 100-105 per barrel, the deficit could expand to about 1.9-2.2 per cent of GDP, increasing macroeconomic pressures.
ICRA also added that the situation could also impact remittance inflows, with around 40 per cent of India's inward remittances originating from West Asian countries, including the UAE and Saudi Arabia.