India's Economy On Edge: EY Warns Prolonged West Asia Conflict May Trigger Twin Blow To Growth And Prices

A Cascade Effect In Motion

The EY Economy Watch report titled "Monitoring India's macro-fiscal performance" has sounded the alarm on India's macroeconomic outlook, citing higher energy prices and supply disruptions as key risks. With India importing nearly 90% of its crude oil requirements and heavily dependent on natural gas and fertilizer imports, the economy remains particularly exposed to external shocks that could ripple across multiple sectors.

How The Numbers Stack Up

EY had previously projected India's GDP growth at 6.8–7.2% for FY27 in its February report. However, if the West Asia conflict persists throughout the next fiscal year, real GDP growth could erode by around 1 percentage point, while CPI inflation could rise by approximately 1.5 percentage points from baseline estimates of 7% and 4%, respectively. Global crude prices have surged nearly 50% since the United States and Israel launched military strikes against Iran on February 28, triggering sweeping retaliation from Tehran.

Sectors In The Line Of Fire

The report identifies several employment-intensive sectors including textiles, paints, chemicals, fertilizers, cement, and tires as being directly impacted by energy market disturbances. Any reduction in employment or incomes in these sectors may further dampen aggregate demand, creating a dual hit on both supply and demand conditions across the economy.

The Stabilization Buffer

To cushion against such global headwinds, the government has already allocated ₹1 lakh crore for an Economic Stabilization Fund (ESF), which EY recommends strengthening further.

Key Highlights

1. EY Economy Watch warns India's FY27 GDP growth could decline by 1 percentage point if West Asia conflict persists
2. Retail inflation may rise by 1.5 percentage points from baseline estimates of 4%
3. India imports nearly 90% of its crude oil requirements, making it highly vulnerable to global energy shocks
4. Employment-intensive sectors like textiles, paints, chemicals, fertilizers, cement, and tires face direct impact
5. Global crude prices have surged nearly 50% since US-Israel military strikes against Iran on February 28, 2026
6. EY had earlier projected India's GDP growth at 6.8–7.2% for FY27 in its February report
7. Government has allocated ₹1 lakh crore for Economic Stabilization Fund to buffer against global shocks
8. OECD projected India's GDP growth to moderate to 6.1% in FY27, down from 7.6% in the current fiscal year

Sources: EY Economy Watch Report, The Hindu Business Line, Tribune India, KNN India, March 2026