The Gulf region also accounts for a major portion of remittances into some Indian states and if the war prolongs, this will also be impacted. Just when it appeared that India is well poised with finalisation of a trade deal with the European Union, it now faces another external shock. Though a trade deal with the USA is in works, it has hit a roadblock with developments including the US Supreme Court order striking off Trump tariffs.
Already the impact has been felt with LPG shortage and industries reporting curtailment or shut down of operations due to Force Majeure notices by gas suppliers. One has to wait and watch to see if there will be long-lasting implications for India from the conflict.
The immediate impact felt by industries is increase in freight cost. Some industry leaders fear that cost escalation would be the biggest challenge, which would lead to slowdown in demand.
The Union government retained its retail inflation target at 4 per cent, with a comfort band of 2-6 per cent for a five year period from 1 April 2026 to 31 March 2031. Analysts expect headline inflation to increase to 4.3 per cent in fiscal 2027, when compared to lower levels in fiscal 2026. The Reserve Bank of India is expected to take a pause on rate cuts and may even consider rate hikes if the energy-driven inflation persists.
India’s merchandise slipped 0.8 per cent to USD 36.6 billion in February 2026, due to a 40 per cent decline in exports of p e t r o l e u m products. As imports outpaced exports, the merchandise trade deficit widened to USD 27.1 billion in February from USD 14.4 billion a year ago.
In fiscal 2027, India’s current account deficit is expected to widen to 1.5 per cent of GDP, when compared to a projected 0.8 per cent of GDP in fiscal 2026. However, services trade surplus is expected to keep the current account deficit at a manageable level.
Meanwhile, factors such as like non-conclusion of trade deal with USA and other trade uncertainties would continue to weigh on export-oriented sectors. Overall, the geopolitical and trade uncertainties could impact commodity prices, trade volumes and capital flows.