US-Iran War Claims New Victim: India

India’s economic growth is expected to slow significantly in the 2026/2027 fiscal year, amid weakening private investment and mounting pressure from soaring global oil prices triggered by conflicts in the Middle East, such as the war between the United States and Iran. According to a Reuters poll of 42 economists, India’s gross domestic product is projected to grow by just 6.6%, down from 7.7% in the previous fiscal year. Kunal Kundu, an India economist at Societe Generale, assessed that the official growth figures likely do not fully reflect the real economic conditions. “We believe the headline number likely overstates the true pace of economic activity,” Kundu said. He noted that while rising investment and inventory accumulation have supported growth, measurement distortions make the economy appear stronger than the underlying fundamentals. The Reuters survey, conducted from 21 to 27 July, also forecast that India’s economy would only recover gradually, with growth of 6.8% in the 2027/2028 fiscal year. This slowdown occurs as Asia’s third-largest economy remains reliant on government spending, while private investment is not yet considered to have recovered sustainably. Although official data showed private investment growing 10.8% in the January-March quarter, many economists doubt the trend can be sustained. Businesses are still holding back on expansion due to uncertainty over domestic demand, potentially limiting job creation. Morgan Stanley’s Chief India Economist, Upasana Chachra, said the weakening global growth outlook, trade slowdown, and sluggish domestic consumption and investment could reduce incentives for companies to expand production capacity. She noted that many firms are still postponing large-scale capital expenditure despite available policy support. Pressure on the Indian economy also stems from the surge in global crude oil prices following the conflict involving the United States and Israel with Iran. As a country that imports around 90% of its crude oil needs, India is highly vulnerable to prolonged increases in energy costs. Higher oil prices have raised fuel and transportation costs, triggering inflation risks while suppressing domestic consumption. This situation leaves the Reserve Bank of India facing the challenge of balancing support for economic growth with inflation control. A majority of economists in the Reuters poll expect the RBI to hold its benchmark interest rate at its August policy meeting while evaluating the impact of rising energy prices on inflation.