The global tensions have also begun to negatively weigh on the country’s inflation and growth outlook.
Higher import and logistics costs and a possible decline in remittances from the 10 million Indians who live in the Gulf could end up having a “significant” , externalimpact on some of these metrics, India’s finance ministry said in its latest monthly review. It added that the recent shocks are being transmitted through “supply constraints, and pressures across sectors, with early indications of some moderation in economic activity”.
Gross domestic product (GDP) was previously forecast to expand at 7% levels in financial year 2026-27. But the crisis in the Gulf could shave off growth by as much as 1%, as per various brokerages.
Given that this comes in the backdrop of recent downgrades to India’s GDP (following changes to the statistical base year), India’s ambitions to cross Japan to become the world’s fourth largest economy will most certainly be further pushed back.
As for inflation, food costs have begun to spike but the conflict has not driven up prices at the pumps so far, with the government absorbing the price shock. India has cut excise duties on petrol and diesel to protect consumers ahead of key state elections, and also imposed windfall taxes on exports.
The energy shock, however, is multifaceted.
India is the world’s third-largest importer of crude, but 60% of its natural gas and over 90% of LPG imports (it is the world’s second largest consumer) also originate from the region, which makes this crisis potentially severe for Delhi.
A quarter of its fertiliser imports are also from Middle Eastern countries and supply disruptions could pose problems for its vast agrarian economy, particularly in the upcoming sowing season amid the rising probability of the El Niño weather phenomenon, Care Edge Ratings said in a note.
“The bigger concern for India’s economy is outright shortage,” say Shilan Shah and Mark Williams of Capital Economics. “[They] have already triggered partial or full closures of restaurants and hotels and are reportedly also hitting food processing factories, the ceramics industry and even funeral services.”
The result could be a “stagflationary shock of pretty large magnitude” – where inflation goes up and growth stagnates, Arvind Subramanian, India’s former chief economic adviser, told India Today , externalTV channel.
“The stag part of the stagflation is already being felt in terms of restaurants closing down and households having less natural gas,” Subramanian said.
There are also early signs of something worse. In scenes strikingly reminiscent of Covid-era lockdowns, the LPG supply hit seems to be prodding a return of some migrant workers from big cities such as Mumbai.
Economists worry it could trigger supply-side problems for the economy if labour starts becoming unavailable and wages begin to rise.
The government has responded to the crisis by proposing a $6.2bn “economic stabilisation fund” and sought approvals for additional spending on food and fertiliser subsidies.
This comes at a cost – the resources have been freed by rationalising expenditure, potentially to allocations for roads and railways infrastructure, and yet the funds are “modest relative to the scale of the challenge”, according to Bernstein.
