India’s economic growth and inflation could face significant impact due to the Iran conflict in West Asia, according to EY’s Economy Watch report. The report stated that if the conflict continues into the next financial year, India’s real GDP growth could decline by about 1 percentage point, while retail inflation based on the Consumer Price Index (CPI) could rise by around 1.5 percentage points. The impact is expected to be particularly visible in oil- and energy-dependent sectors.
The report said employment-intensive sectors such as textiles, paints, chemicals, fertilisers, cement and tyres would be directly affected. A decline in income or employment in these sectors could weaken domestic demand, affecting production levels as well as consumers’ purchasing capacity.
India meets nearly 90% of its crude oil requirement through imports and also has high dependence on imports for natural gas and fertilisers. As a result, volatility in global oil markets has a direct impact on the domestic economy.
EY stated that the conflict in West Asia has affected global crude oil and energy markets in terms of supply, storage, transportation and pricing. These disruptions may take time to normalise even if the conflict ends soon, affecting several oil- and energy-linked sectors.
EY estimated that if the impact of the Iran conflict persists through FY27, India’s real GDP growth could decline by around 1 percentage point, while CPI inflation could increase by approximately 1.5 percentage points. In February 2026, EY had projected India’s GDP growth for FY27 in the range of 6.8% to 7.2%.
An increase in inflation could directly affect consumers’ purchasing power. Rising oil and energy prices may lead to higher transportation, production and food costs, potentially weakening domestic demand.
EY stated that addressing this situation would require the government to adopt a b counter-cyclical policy, including the involvement of large and industrial states. It also recommended strengthening the Economic Stabilisation Fund (ESF) created in FY26. The government has already established an ESF of ₹1 lakh crore to provide financial protection against global risks.
The fund is intended to maintain economic stability during periods of pressure arising from oil price spikes, inflation and global tensions.
Global crude oil prices have risen by approximately 50% since the attack on Iran by the United States and Israel on February 28. This increase has directly impacted fuel prices and production costs in India, with higher inflation likely to reduce domestic demand and increase costs across industries.
The Organisation for Economic Co-operation and Development (OECD) has also estimated that India’s GDP growth could moderate to 6.1% in the next financial year, compared with an expected 7.6% in the current financial year. The OECD warned that global uncertainty and rising oil prices could affect India’s growth trajectory.
EY also stated that rising oil and energy prices could reduce income and employment in labour-intensive sectors, weakening overall domestic demand. Production in sectors such as textiles, fertilisers and cement could slow, while higher inflation may reduce purchasing capacity for essential goods, potentially impacting market demand and business activity.
