EAC-PM Chairman S Mahendra Dev warned that the West Asia conflict will continue to weigh on India's economy even if the war ends soon, speaking at the Golden Jubilee conference series of the National Institute of Public Finance and Policy (NIPFP). As per Business Standard, Dev emphasized that oil production and supply chains would take time to stabilize, and India may not return to $69 per barrel in the near future. The EAC-PM chairman noted that crude prices could influence both growth and inflation in FY27, with growth remaining in the 6.5-7% range if crude stays up to $95 per barrel, but warned that higher prices around $120 per barrel would require fresh re-estimation of growth and inflation forecasts. Dev called for India to move towards a structured risk management framework and urged the government to identify critical economic 'choke points' in energy, food and fertilizers, while building strategic reserves even at some short-term cost to growth.
Oil prices have surged back above 110 dollars per barrel, significantly amplifying India's inflation and currency pressures as the economy faces mounting stagflation risks. As per WIONews, this latest surge comes from geopolitical tensions in the Strait of Hormuz and broader global supply concerns, creating additional headwinds for the already strained Indian economy. The WPI inflation jumped to 8.3 per cent in April 2026, marking a 42-month high, largely driven by a sharp 24.71% rise in fuel and power costs that occurred before recent retail fuel price hikes fully took effect. The report forecasts that the latest ₹3 per litre fuel price hike only covered about 7-8% of cumulative under-recoveries from months of unchanged retail prices, estimated at ₹1.7-1.8 lakh crore. Systematix warns that WPI crossing the 10% mark is "not a tail risk" but "a plausible and near-term base case" as the underlying inflation momentum continues to build, with Consumer Price Index (CPI) retail inflation rising to 3.48% in April 2026 and forecasts suggesting this could climb to the 6-7% range in the second half of FY27.
The Indian rupee has fallen sharply, down 12.49% in the past year and hitting a record low around ₹95.74 against the US dollar in early May 2026, with projections suggesting it could drop below ₹100 per dollar. The widening trade deficit hit $28.38 billion in April 2026, creating payments pressures that make the Reserve Bank of India's policy decisions harder. Systematix warns that higher rates, a weak rupee and costly energy imports could impact banking, real estate and rural demand, while official CPI forecasts will soon touch 6-7 per cent. The fuel price increase comes amid rising global crude oil prices, with Brent crude around $111/bbl and WTI at $105/bbl, driven by Middle East tensions and staying above $100/bbl. The report characterizes the current situation as a "painful policy unwind" as the RBI may need to reverse last year's monetary accommodation.
Despite some resilience, economic growth faces significant pressure from multiple factors. India's GDP grew 7.8% in Q4 2025, with full-year FY26 growth projected at 7.5%, but forecasts for FY27 suggest a slowdown with SBI predicting 6.6%, IMF 6.5% (2026), and Goldman Sachs 6.9%. The FY27 fiscal deficit is forecast at 4.3% of GDP (-4.5% consolidated balance in Dec 2025), showing fiscal discipline though higher spending could strain finances. Rising energy, logistics, and raw material costs are hurting industrial and manufacturing margins, with rural demand becoming more vulnerable due to rising farm input costs and possible weak monsoons. The current account deficit could widen to 10% of GDP, though other estimates are 1.5-2%, creating a cycle of imported inflation, currency drops, and weaker private investment as cash flows suffer.
Responding to criticism over rising fuel costs, Union Minister Kiren Rijiju noted that India has managed to limit petrol and diesel price increases despite sharp spikes in global crude prices. As reported by Zee News, he highlighted that several countries witnessed fuel price increases ranging from 20 per cent to nearly 100 per cent, while India's petrol and diesel prices rose by only 3.2 per cent and 3.4 per cent, respectively. The minister emphasized that India's approach has been more measured compared to global peers facing similar supply pressures. However, the current economy shows underlying structural weaknesses that worsen external shocks, with the RBI currently cautious with the repo rate at 5.25% but persistent inflation and a weakening currency could force tighter policy decisions that would discourage investment. If inflation remains high, RBI may tighten monetary policy to control price rise, as per ekamiasacademy, highlighting the urgent need for coordinated policy responses to address the stagflation risks facing the economy.
