West Asian crisis: India braces for market impact; growth momentum on track
The finance ministry has no plans to change its last growth estimate of 7-7.4% for FY27, which was raised by 20 basis points only last Friday, an official told ET.
Both the ministry and financial sector regulators have intensified monitoring of the rapidly evolving scenario and its broader implications, anticipating strong fluctuations in equity, commodity and foreign exchange markets, the official said.
“The next two weeks will be very important when the picture will be clearer,” the first official said. “But there should be no undue concerns about these issues either.”
According to the official, India’s strong macroeconomic fundamentals will continue to protect the economy from external factors.
“Managing market volatility will be the most important task,” a regulatory official said.
Also Read | India says conflict in Middle East causes ‘deep concern’ India firmly opposes attacks on merchant ships Iran’s retaliatory attacks on many oil-producing West Asian countries that host US military bases or have western allies such as the UAE, Saudi Arabia, Qatar, Iraq and Bahrain have raised the specter of a wider and longer-lasting regional conflagration. The killing of Iran’s religious leader Ayatollah Ali Khamenei and some important military commanders further complicated the situation.
Global trade volumes could be diverted and shipping costs could soar after reports that Iran is threatening to close the Strait of Hormuz, a vital passage connecting the Persian Gulf to the Sea of Oman, which accounts for about a fifth of global crude oil supplies, experts said.
Global prices of crude oil and other energy products are set to rise, affecting India’s trade deficit. This will put pressure on the rupee, suppress inflation and potentially worsen the current account deficit. India met nearly 88% of its oil needs through imports in FY25.
Also read: There’s more at stake for India this time than just oil
Strong macro fundamentals
Of course, given weak domestic inflation, price pressure is unlikely to increase uncomfortably, the official quoted earlier said. “India’s strong macroeconomic stability will come in handy in such situations,” he said.
According to the renewed consumer price index, retail inflation reached 2.75% in January; This was within the central bank’s 2-6% tolerance range.
Therefore, India’s economic growth has ranged from 7.1% to 7.6% since FY24, according to the new gross domestic product series released on Friday.
Rising tensions may also negatively impact capital flows to India in the short term as global investors turn to safe-haven assets such as gold. The conflict has already disrupted flight operations in several major destinations, including Dubai, Doha and Abu Dhabi.
Brent crude oil futures rose 2.9% to $72.87 a barrel on Friday, ahead of a joint attack on Iran on Saturday. Prices are up about 6% since the beginning of February.
Meanwhile, U.S. gold futures rose 1% to $5,247.90 per ounce on Friday. Given its safe haven status, gold prices are expected to rise further in the coming days due to the conflict.
