India’s gross domestic product (GDP) is projected to increase by 6.6% in fiscal year 2027, with retail inflation averaging 5.1% in the same period due to geopolitical tensions, as per a report. The closure of the Strait of Hormuz has led to a rise in Brent crude price forecasts to $90-95 per barrel, up from $82-87, and is anticipated to keep oil prices high for an extended period, according to Crisil Ratings. The report emphasizes the need to enhance resilience in energy and food security to sustain long-term growth amidst evolving geopolitical dynamics.
The prolonged shutdown of the Strait of Hormuz has resulted in the most significant energy shock on record, with estimated supply losses of at least 10% of global oil and derivatives output, as per S&P Global. This shock has not only impacted energy but also affected sectors like freight, insurance, fertilizers, and supply chains, which will require time to normalize even after the route reopens due to damage to oil and gas infrastructure in West Asia. Despite a ceasefire, crude oil prices have remained above $100 per barrel since mid-March, surpassing $110 per barrel in April.
Apart from the ongoing conflict in West Asia, the report highlights that El Niño conditions leading to a sub-normal monsoon are expected to influence India’s growth-inflation dynamics in the current fiscal year. Input cost pressures have significantly risen for producers, which is likely to hamper GDP growth and drive up retail inflation. The government has restrained passing on the increased energy costs to consumers and has introduced measures to support the industry.
The report cautions that higher inflation resulting from disruptions in agricultural production and escalating commodity prices will limit household budgets and curb private consumption in the country.
