NEW DELHI: The government sees limited impact of the West Asia war on India’s FY26 growth, but a prolonged disruption could force some pass-through of elevated global oil prices into retail fuel, according to two officials aware of an internal assessment.
The conflict, which began on 28 February, has heightened concerns around energy supply disruptions, particularly through the Strait of Hormuz, a key transit route for global oil trade. While the government has so far absorbed the shock through tax cuts and limited price increases, that cushion may narrow if high crude prices persist.
In FY26, is projected to have grown 7.6%, according to the second advance estimates released in February. The fourth-quarter GDP data and provisional full-year figures will be released on 28 May.
The government is assessing damage to global energy infrastructure. The situation so far has the potential to reduce India’s FY27 growth by 0.3-4 percentage points, said one of the two officials, adding that it is hard to predict the full-year impact based on just 45 days of disruption.
“Constant vigil, agility in decision making and preventing panic are central to government’s approach in handling the situation,” said the second official. Both spoke on condition of anonymity as the matter is sensitive.
Growth risks
The conflict has led to the weaponization a key energy transit route, disrupting global supply chains soon after the world economy began recovering from tariff shocks imposed by the US administration in 2025.
Washington imposed a 10% global tariff on imports late in February, after the US Supreme Court struck down last year’s more hard-hitting tariffs under the International Emergency Economic Powers Act (IEEPA).
If the conflict ends within weeks, its impact on global growth is likely to remain limited, easing concerns of a recession or stagflation, the first official said, adding that reconstruction activity could support growth.
Suranjali Tandon, associate professor at National Institute of Public Finance and Policy, said the impact on FY27 would depend on the duration of the conflict and the extent of disruption to freight movement through the Strait of Hormuz.
“India has cut excise duty to offer relief to consumers. If the conflict continues, it could subdue global demand in the June quarter, which India’s exports may not be immune to,” said Tandon. If the conflict is resolved soon, its inflation impact may be short-lived and could dissipate as the situation normalizes, she said.
Some downside risks to FY27 growth estimates have materialized, said Rishi Shah, partner and economic advisory services leader at Grant Thornton Bharat. The Economic Survey had projected 6.8–7.2% growth for FY27 before the conflict began.
“With energy production infrastructure destroyed across major oil facilities in Western Asia, energy price normalization will take quarters, not weeks—even post-ceasefire,” said Shah.
Oil pass-through
India’s ability to shield consumers from higher global oil prices may come under strain if crude remains elevated.
The first official said India has been able to withstand external shocks better than many countries due to its macroeconomic fundamentals, with inflation expected to remain within the Reserve Bank of India’s 2-6% tolerance band.
“Unlike other countries, we have not passed on the elevated oil price to consumers. When the US imposed tariffs, many economists predicted less than 6% GDP growth for India, but it is estimated to be close to 7.6%…If the average oil price stays around $80-90 this year, there is nothing to worry. If the war continues for three to four months or more, then we may have to think about passing on some of it to the retail level,” said the official.
“If the war and supply disruptions persist, cutting excise duty may not remain an option for government beyond a point and it may warrant some pass through of elevated costs to the retail level,” explained Tandon.
Shah said the adjustment may be gradual. “The coming months will see gradual fuel cost pass through—the government has absorbed significant shock thus far, but mathematics demands sharing the burden. We’ll need innovative fiscal-monetary coordination: targeted subsidies for vulnerable populations while allowing market-determined pricing for discretionary consumption, coupled with strategic petroleum reserve deployment.”
“It’s premature for definitive forecasts in this evolving situation, but we would expect expenditure rationalization to contain fiscal slippage,” he added.
The excise duty cut announced in late March will affect the Centre’s FY27 revenue projections, though the overall impact will depend on sectoral revenues, including dividends from oil marketing companies, Tandon said.
A third government official said the Centre remains committed to its ₹12.28 trillion capital expenditure plan for FY27, with no immediate case for cutting revenue spending. The government has budgeted total expenditure of ₹53.4 trillion for the year.
Oil economics
India imports about 90% of its crude oil requirements. A $1 per barrel increase raises the annual import bill by around ₹16,000 crore. In FY25, the oil import bill stood at $137 billion.
The Indian , which includes Brent, Oman and Dubai grades, rose to over $140 per barrel last month before easing to $116.26 per barrel as of 10 April.
Private refiners and retailers such as Nayara and Shell, which together operate around 7,500 fuel outlets, have already raised prices. State-run oil marketing companies have so far held back on increasing prices of regular petrol and diesel, though they have raised prices of premium fuels, industrial diesel, and products such as jet fuel and LPG.
According to rating agency Icra Ltd, sustained could pressure oil companies’ marketing margins and increase the government’s subsidy burden. LPG is the only subsidized petroleum product under the Pradhan Mantri Ujwala Yojana.
At crude prices of $100–105 per barrel, under-recoveries on auto fuels are estimated at ₹11-14 per litre, with higher losses likely if prices rise towards $120-125 per barrel.