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Informist, Wednesday, Mar. 11, 2026

 

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--Crisil:Prolonged West Asia war may have far-reaching implication for India 
--CONTEXT: Comments by Crisil at launch of India Outlook 2026 report 
--Crisil: India has buffers but can't completely offset large energy shocks 
--Crisil: Benign inflation gives space for more support to economy 
--Crisil: Monetary policy panel has space to cut rates but not our base case 
--Crisil: RBI's MPC has space to lower interest rates more 
--Crisil: Seeing more broad-based private capex cycle 
--Crisil: India's relaxed FDI norms for China constructive, positive move 
--Crisil: See GDP growth at 7.1% in FY27 
--Crisil: See CPI inflation at 4.3% in FY27 
--Crisil: Don't expect interest rate hikes in FY27 even if inflation rises

 

NEW DELHI – India's economy is likely to grow at a slower pace in the financial year starting Apr. 1 while inflation is set to rise, according to Crisil. A prolonged military conflict in West Asia and higher crude oil prices could have far-reaching implications for the country, including on inflation, growth, and the current account, Dharmakirti Joshi, chief economist at Crisil, said in a webinar Wednesday.

 

Crisil expects the Indian economy to grow 7.1% in FY27, based on the new GDP series. This would be slower than the 7.6% growth projected for FY26 by the government's second advance estimate.

 

Joshi said growth is likely to remain robust even if crude oil prices remain high, as was the case during the Russia-Ukraine war in 2022. India's GDP grew 7.8% in the December quarter, as per the new GDP series with FY23 as the base year.

 

Crisil does not expect the hostilities in West Asia, which began Feb. 28, when the US and Israel jointly launched strikes on Iran, to continue beyond a few weeks. "That's why we have an oil prediction of $75 to $80 a barrel," Joshi said. "If crude (oil) rises further, and I think the war is protracted, then we will obviously see its impact on growth play out because the input cost will keep rising in that scenario."

 

Crude oil prices jumped after the US-Israel attack on Iran and Tehran's subsequent retaliation. Brent crude oil futures rose to a four-year high of nearly $120 a barrel Monday, though they have since come down to around $90 a barrel.

 

The impact of higher crude oil prices will be more on inflation and the current account deficit, Joshi said. Crisil projects CPI inflation to rise to 4.3% in FY27 from an estimated near 2% in the current financial year.

 

Retail inflation was 2.75% in January, as per the new CPI series with 2024 as the base year. It is expected to have risen to 3.1% in February, according to an Informist Poll. Based on the old CPI series with 2012 as the base year, the Reserve Bank of India has projected retail inflation to average 3.2% in the March quarter and then rise to 4.2% by the September quarter.

 

"CPI inflation forecast was a little higher than 4.3%. But with the new CPI series and after factoring in the lower weight of food items and gold in that, we are getting a lower CPI inflation for FY27," Joshi said. "So, I think the critical difference here is that earlier forecasts were based on the old series of CPI and GDP. Now, these are based on the new series of GDP. So, I think the comparison is not like-to-like."

 

According to Joshi, India has buffers in the form of strategic petroleum reserves, which will protect the country and the economy from the impact of the current conflict even if "they cannot completely offset a very, very large shock". Already robust economic growth, healthy balance sheets of corporations and banks, and a low current account deficit also offer the country a cushion against geopolitical uncertainties, the economist said.

 

The government also has a fiscal cushion to deal with emergencies, Joshi said, adding that the RBI's Monetary Policy Committee also has space to cut interest rates further. "They may not cut rates, I think that's the base case for us."

 

If inflation remains benign, it will also give the RBI space to provide more support to the economy, Joshi said. The RBI's rate-setting panel had lowered the repo rate by 125 basis points in 2025 but left the key rate unchanged at 5.25% at its meeting in February.

 

Asked if higher inflation could force the Monetary Policy Committee to raise interest rates in the near future, Joshi said he does not expect a rate hike in FY27. "If the war gets prolonged, then obviously you will see an upside to inflation," the economist said. "But that's not the scenario we are working with right now."

 

Miren Lodha, senior director at Crisil Intelligence, said the private-sector capital expenditure cycle right now is "far more broad-based" than in recent years. "We are seeing growth in capital investments across the industrial sector and within industrial, it is spread out," Lodha said.

 

"So past 2-3 years, we have had this spread being largely driven by steel and cement, but now we see even some of the export sectors like textiles, pharma seeing an increase in capex," Lodha said. "Similarly, oil and gas will have a significant contribution."

 

Joshi said the government's decision to relax foreign direct investment norms for China is "very constructive and a positive move". This is particularly important as India is trying to move up the value chains and inviting Chinese FDI would allow easier linkage with global supply chains, he said. 

 

FDI from China will also lead to more capital coming in. Joshi expects capital flows to revive in the future. Crisil expects the current account deficit to widen to 1.5% of GDP in FY27 from an estimated 0.8% of GDP for the current financial year. This, Joshi said, would "still be in the safe zone".

 

India's current account deficit was $30.1 billion, or 1% of GDP, in Apr-Dec, lower than $36.6 billion, or 1.3% of GDP, in the corresponding year-ago period.  End

 

Reported by Shubham Rana and Shweta

Edited by Rajeev Pai

 

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