Prolonged Middle East war can erode about 1 percentage point of India's GDP in FY2026-27

India's real GDP growth for the next fiscal (2026-27) could erode by around one percentage point, while retail inflation could rise by about 1.5 percentage points from their baseline estimates if the West Asia conflict persists through the next fiscal, consultancy firm Ernst & Young report said.

The EY Economy Watch report said several sectors, including employment-intensive sectors like textiles, paints, chemicals, fertilisers and cement could be directly impacted.

Any reduction in employment or incomes in these sectors may further dampen aggregate demand. As a result, both supply and demand conditions may be adversely affected by global oil market disturbances, the report added.

It said the Indian economy, which imports nearly 90% of its crude oil requirements, is also highly dependent on imports of natural gas and fertilisers and is particularly vulnerable to such external shocks, with the adverse effects likely to cascade across multiple sectors through strong forward and backward linkages with crude oil and energy.

EY, in its February report, projected India's GDP could be between 6.8% and 7.2% in the 2026-27 fiscal.

The Indian government has already set up a Rs1 lakh crore economic stabilisation fund to act as a financial cushion against global headwinds.