India maintains a sturdy growth profile, but external developments tied to the Middle East conflict are increasing downside risks to the country’s economic outlook, according to the government’s monthly economic report released on Wednesday.
The report notes India recorded real GDP growth of 7.6% in the previous fiscal year and states that the country "enters FY2026-27 at the intersection of domestic resilience and external turbulence." It adds that the International Monetary Fund has revised up its growth projection for India in 2026-27 to 6.5% from 6.4%, underscoring India’s relative strength. At the same time, the document cautions that risks are skewed toward higher inflation, wider fiscal and external deficits, and slower growth if disruptions to energy and fertiliser supplies continue.
Energy costs have risen markedly. The report says India’s crude oil basket averaged $113 per barrel in March and averaged just under $115 per barrel this month through April 24. Those higher energy prices are being reflected further up the production chain: wholesale prices accelerated sharply, signaling that cost pressures are building at the producer level even while consumer inflation remains moderate.
Specifically, retail inflation climbed to 3.4% in March from 3.2% in February, with food inflation at 3.87%. Wholesale inflation measured 3.88% in March, up from 2.13% in February, the report states, noting rapid transmission of higher energy and commodity prices into producer-level inflation. The report warns that "the risks are tilted toward persistence rather than quick reversal of the price pressures."
External trade shows signs of strain. Merchandise exports were down 7.4% year-on-year in March, with 24 of 30 major export categories declining. Exports to the United Arab Emirates and Saudi Arabia fell sharply, the report says, attributing part of the weakness to a blockade of the Strait of Hormuz that has boosted freight, insurance and logistics costs.
Remittances — an important source of foreign exchange — reached a record $135.4 billion in FY25, the report notes, but it also flags the possibility of future pressure on those flows if a protracted conflict weakens labour markets in the Gulf.
On the labour front, the government bulletin records a rise in the unemployment rate to 5.1% in March from 4.9% in February. It says labour conditions have broadly stabilised, but adds that confidence in future job prospects has softened, particularly in urban areas.
The report ties these developments together as a mix of domestic strength and external turbulence: resilient growth, an upgraded IMF forecast and stable labour conditions on the one hand, against rising fuel and commodity costs, weaker exports and potential strains on remittances and fiscal balances on the other. The government emphasises that continued disruptions to energy and fertiliser supplies would exacerbate inflationary pressures and widen fiscal and external deficits, with attendant implications for growth.
Policy makers and market participants will likely watch incoming data on energy prices, wholesale inflation, export trends and remittance flows closely to gauge how persistent the pressures become and how they feed through to the broader macroeconomic picture.