Tensions in West Asia, sparked by the Iran-US conflict, are dampening India’s economic outlook, prompting major financial firms to trim growth projections. Morgan Stanley now forecasts India’s real GDP growth at 6.2 percent for FY2026-27, a 30 basis point reduction from the previous 6.5 percent estimate.
Key Factors Driving the Downgrade
Surging global crude oil prices, disrupted industrial supply chains, and escalating input costs form the primary headwinds. Weakness in the rupee and persistent inflation exacerbate these challenges. Analysts project average crude oil prices at $95 per barrel in FY27, with limited gas availability adding further strain.
Potential Risks from Oil Price Spikes
Morgan Stanley identifies a sharp escalation in crude prices as the greatest threat to these projections. Should Brent crude reach $150 per barrel for a full quarter, India’s economy could face significant fallout. In that case, FY27 GDP growth might dip to 5.7 percent, retail inflation could exceed 6 percent, and the current account deficit may widen to 3 percent of GDP.
India’s Vulnerability to Oil Shocks
Crude oil prices have jumped 30-40 percent since the Iran-US war erupted, hovering around $105 per barrel in recent months. As a net importer reliant on foreign oil for 85 percent of its needs, India remains highly exposed. Petroleum Ministry figures show crude imports exceeded $123 billion in FY2025-26. Prolonged high prices could push the annual oil bill toward $200 billion.
