Oil Shock, Rupee Fall Raise Risks to India’s Growth Path for FY27

India is likely to face downside risks to its economic growth projection of 7.0%–7.4% for FY27 due to a surge in energy costs, supply chain disruptions, and heightened geopolitical uncertainty, according to the monthly economic report published on Saturday. The West Asia conflict, which has triggered global fears of inflation and recession, has disrupted the Strait of Hormuz — a key route for global trade. The near-complete closure of the Strait has pushed crude oil prices as high as $120 per barrel, with analysts expecting prices to breach $150 per barrel if the conflict prolongs through April.

With India heavily dependent on crude imports to meet its energy needs, these global headwinds have put immense pressure on the Indian rupee and growth prospects. The rupee has depreciated nearly 3.5% since the conflict erupted over a month ago. So far in FY26, the currency has fallen nearly 11% against the greenback.

“High-frequency data for April, and possibly May, should provide a clearer picture of growth prospects for the new financial year,” Chief Economic Advisor V. Anantha Nageswaran wrote in the report. He also cautioned that the current account deficit (CAD) is expected to worsen significantly in the financial year beginning April 1. For the October–December period, India’s CAD widened to 1.3% of GDP. The report added that the government may need to provide immediate, targeted relief to the most affected and vulnerable businesses and households.

Policy Intervention to Mitigate Risks

Inflationary pressures and growth risks are rising, especially for sectors reliant on imported inputs. The tensions in West Asia have already triggered one of the worst LPG supply disruptions the country has seen in recent decades. The Ministry of Petroleum and Natural Gas announced that households will be prioritised for LPG supply amid surge in demand and shortage of the 'just in time' suppy. Further, last week, the Centre slashed excise duty on petrol and diesel, a move likely to cost the exchequer nearly ₹1 trillion in lost revenue. To limit the pace of the rupee’s depreciation, the Reserve Bank of India on Friday directed banks to limit their net open rupee positions to $100 million at the end of each trading day, effective April 10.