The Ministry of Finance on Saturday cautioned that there is ‘considerable downside’ to the country’s upgraded growth forecast for FY27 due to the conflict in West Asia, underlining India’s position as a major energy importer with strong trade, investment and remittance linkages with the region.
On February 27, the ministry upgraded real GDP growth estimate for FY27 to a range of 7.0% to 7.4%.
The near-term outlook remains uncertain, with external shocks posing downside risks to growth through higher input costs and supply constraints, even as domestic demand may help cushion the impact, the ministry said in its monthly economic review report for March.
Chief Economic Adviser V Anantha Nageswaran said high-frequency data for April and possibly May may give a better handle on the likely growth rate for FY27, as data for March will not reveal much, as businesses are trying to meet their full-year targets for FY26.
“On February 27, we upgraded India’s growth estimate (at constant prices) for FY27 to a range of 7.0% to 7.4%. Clearly, there is considerable downside to this number. Similarly, the current account deficit too will widen significantly in FY27,” Nageswaran said in the Monthly Economic Review.
India’s current account deficit widened to 1.3% of GDP in Q3 of FY26, from 1.1% of GDP in Q3 FY25. The increase was mainly driven by a larger merchandise trade deficit, notwithstanding continued strong performance in the services sector.
According to the ministry, foreign exchange reserves continue to remain comfortable, providing cover for more than 11 months of goods imports.
Given the considerable impact of the conflict on India’s economy, Nageswaran advocated leveraging the fallout to redouble recent reform efforts to enhance India’s competitiveness and preparedness.
The evolving situation warrants close monitoring and calibrated policy responses. However, India’s relatively robust macroeconomic fundamentals and sustained policy efforts provide resilience, the ministry said in the report.
“The government’s interventions across energy diversification, agricultural preparedness, inflation management, external sector strength, and other policy measures support the economy’s ability to absorb near-term disruptions arising from global developments,” the ministry said.
It also underlined that the recent oil price shock presents an upside risk to the inflation trajectory in the medium term, as higher energy costs are gradually transmitted into domestic prices, particularly in fuel-intensive sectors.
Retail inflation rose to a 10-month high of 3.21% in February, driven primarily by a sharp uptick in food prices. The February inflation numbers do not yet reflect the potential impact of rising crude oil prices, which pose an upside risk going forward.
“A sustained elevation in oil and gas prices could lead to broader second-round effects through input cost pass-through across sectors,” the ministry said.
The resilience of the Indian economy in the uncertain global environment will depend on the strengthening of domestic fundamentals. This will require sustained focus on structural reforms to enhance competitiveness, achieve efficiency gains, and drive investment. “At the same time, emphasis on preparedness, policy coordination, and domestic capacity development will remain important for navigating evolving global uncertainties and supporting growth,” the report underlined.
TOPICSGDP growthThis article was first uploaded on March twenty-eight, twenty twenty-six, at thirty-one minutes past eleven in the night.