War shock drags on India growth outlook

A war raging thousands of miles away is tightening its grip on India’s economy, as surging oil prices and acute gas shortages ripple from kitchens to factory floors, threatening growth and stoking fresh inflation fears.India — among the most exposed major economies to the West Asia crisis — imports about 90% of its crude oil and nearly half of its liquefied petroleum gas (LPG). With the Strait of Hormuz now effectively shut by Iran, roughly half of India’s crude and over three-fourths of its LPG imports have been disrupted, sending oil prices soaring past $100 a barrel.Also Read: Fading flames, rising heat: LPG crisis leaves restaurants and staff on edgeThe fallout is immediate and visible. A full-blown cooking gas crunch is gripping households, eateries and small businesses, while industries dependent on LPG are being forced to halt operations. What began as a distant geopolitical conflict is now seeping into everyday life — and balance sheets.Economists are already dialing back expectations. Analysts at Goldman Sachs, Australia and New Zealand Banking Group and IndusInd Bank warn that India’s heavy reliance on imported energy will weigh on growth. Goldman has cut its 2026 growth forecast by 0.5 percentage points to 6.5%, while ANZ sees expansion slowing to 6.5%–6.8% in the fiscal year starting April, down from around 7%.At IndusInd Bank, economist Gaurav Kapur estimates a 30-basis-point hit, projecting growth at about 6.5% and cautioning that weaker consumption could drag the recovery."The overall impact on growth will be more dampening than inflation," Kapur said. "The government has enough fiscal space to absorb the oil price hit through excise duty cuts, but the hit on the industrial sector will impact growth."On the ground, the strain is already biting.Satyabhan Singh, a 35-year-old food delivery driver, says his daily income has plunged by more than half to around Rs 800 as fuel costs surge. He now spends Rs 300 to Rs 400 a day on petrol, leaving little room to absorb further price hikes."The government should make some arrangements for us," Singh said. "When there is no gas, they should ensure we can still earn enough to survive."Also Read: India's state-owned fuel retailers seek advance payments from dealers as global price surgesHis story mirrors a broader shift. Gig work — now one of India’s fastest-growing employment segments — has expanded rapidly, with the workforce rising to about 12 million by March 2025 from 7.7 million in March 2021, according to the government’s Economic Survey. Rising fuel costs threaten to erode these gains.The industrial impact is even starker. Gas rationing is disrupting sectors ranging from fertilizers and aluminum to helium used in semiconductor manufacturing, raising the specter of a prolonged slowdown."All heating furnaces use LPG and, given the shortage and curbs on industrial use, factories have shut," said Pankaj Chadha, chairman of the Engineering Exports Promotion Council. "In Gujarat, about 98% of engineering firms are shut, while in Maharashtra around half the units have closed."The crisis is also exposing vulnerabilities in India’s external sector.Before the conflict, the outlook had appeared unusually stable. The government had projected growth of up to 7.2% for the coming financial year, while inflation was expected to remain near the Reserve Bank of India’s 4% target at least until September. RBI Governor Sanjay Malhotra had even described the scenario as "Goldilocks," with steady growth and contained inflation.That balance is now under strain."The external sector has emerged as the most at risk in this crisis," said Anubhuti Sahay of Standard Chartered. "While import cover is still about 10 months, the rupee has to act as the shock absorber."Exports could take a hit as disruptions affect nearly $200 billion of shipments to Gulf countries, widening the current account deficit and putting fresh pressure on the rupee, already hovering near record lows of around 92.5 per dollar. The region is also critical for remittances, with about 10 million Indian workers sending home nearly $50 billion annually.Inflation, too, is back in focus. Economists warn the surge in fuel costs could undo years of effort by the central bank to stabilise prices."Ripple effects would be felt across industries,” including restaurants and manufacturing units reliant on liquefied petroleum gas," said Shumita Deveshwar of GlobalData. TS Lombard, adding that inflation could climb to around 6% by September or October.For now, India’s economy is absorbing the shock. But with supply lines choked and costs rising, the longer the conflict drags on, the deeper its imprint is likely to be — not just on growth charts, but on the daily lives of millions.