The firm attributed higher crude oil and other commodity prices, softer global growth amid the conflict and forecasts of a below-normal monsoon as reasons for its lower GDP forecast.
Crisil expects retail inflation, measured by Consumer Price Inflation (CPI), to surge to 5.1 per cent in FY2027 from 2 per cent in FY2026.
The Reserve Bank of India has projected real GDP growth for 2026-27 at 6.9 per cent and retail inflation at 4.6 per cent.
“Prolonged closure of the Strait of Hormuz is expected to keep crude oil prices elevated for longer. We have revised our forecast for Brent crude oil price per barrel to USD 90-95 from USD 82-87 previously,” Crisil said.
The downside risks to the economy had begun materialising with over two months of unresolved West Asia conflict. The closure of Strait of Hormuz had created the largest energy shock on record alongside trade and supply chain disruption, it added.
“The Strait of Hormuz has been de facto shut for over two months, amplifying the global energy shock. This will take time to normalise because of the damage to oil and gas infrastructure in West Asia—even after the route reopens,” Crisil said.
The shock extended beyond energy to freight and insurance costs, supply chains and fertilisers, which had a multi-dimensional impact on the economy, it said. Besides the repercussions of the ongoing West Asia conflict, El Niño conditions leading to sub-normal monsoon were also expected to impact India’s growth-inflation mix this fiscal, it said.
Crude oil prices remained above USD 100 per barrel since the middle of March and crossed USD 110 per barrel in April despite the ceasefire. Among petroleum products, diesel and jet fuel prices surged in Asia and Europe.
“Input cost pressures from the spike in crude oil and gas prices will weigh on growth. Global supply chain disruptions and the reduced availability of gas and other inputs will add to the pressure. The manufacturing sector, which is heavily dependent on imported inputs, is particularly vulnerable,” the ratings agency warned.
Exports will be adversely impacted by weaker global demand and trade disruptions. S&P Global has revised downward the GDP growth for the USA and Eurozone to 1.9 per cent and 0.6 per cent, respectively, for calendar year 2026. Eurozone and the USA together account for 37 per cent of India’s goods exports. India’s exports to West Asia are already slowing, Crisil noted.
Below-normal rainfall amid the onset of El Niño conditions are expected to impact agricultural production. The India Meteorological Department expects rainfall at 92 per cent of its long period average, which indicates below-normal rains this year. This will be a challenge for the rural economy. The US National Oceanic and Atmospheric Administration expects El Niño to emerge in May-July (61 per cent chance) and persist through at least the end of 20263. If the prediction plays out, kharif and rabi output will be at risk.
“Higher inflation on account of the disruptions to agricultural production and higher commodity prices will constrain household budgets and restrain private consumption. Elevated uncertainty due to the conflict may delay business decisions and weigh on private investments,” Crisil said.
However, growth would continue to be supported by fiscal policy, including the Centre’s capital expenditure thrust, goods and services tax rate rationalisation and unconditional cash transfers by states, it added.
Additionally, consumers had been shieled from volatility in crude oil prices by keeping petrol and diesel prices steady. The strong balance sheets of Indian corporates and adequately capitalised banks also offered some buffer during these turbulent times, Crisil said.
While the government had restrained the rise in retail fuel inflation so far (liquefied petroleum gas for domestic use has seen a modest price rise, while pump prices for standard variants of petrol and diesel remain unchanged), a persistent rise in global crude oil prices was a risk for higher pass-through in pump and retail fuel prices for cooking and transportation, it said.
A sharp rise in the cost of energy and other inputs, as well as trade and transportation, is expected to be passed by producers to consumers, raising core inflation. The West Asia conflict has disrupted supply chains and raised international freight and insurance costs. This, coupled with a depreciating rupee, would raise the cost of imported inputs. • Expected below-normal rainfall amid the likely El Niño conditions during the southwest monsoon season could hurt agricultural production and exert pressure on food inflation, Crisil added.
“Current account deficit (CAD) to rise to 2.2 per cent of GDP in fiscal 2027 from an estimated 0.8 per cent last fiscal. Higher oil prices are expected to exert greater pressure on India’s CAD. Oil, as a commodity, remains the biggest source of India’s overall goods trade deficit (36 per cent in fiscal 2026). It is noteworthy that India’s oil trade deficit was trending higher in the past two fiscals even when crude oil prices were falling. This fiscal, with crude oil prices rising, the pressure on oil trade deficit will increase. Elevated gas and fertiliser prices will put further pressure on the import bill,” it noted.
Goods exports are expected to be hit by global trade disruption and weakening global demand. Notably, India’s exports in March—the first full month after the West Asia conflict—declined 7.4 per cent on-year, with exports to Saudi Arabia and the UAE down 45.7 per cent and 61.9 per cent on-year, respectively, Crisil said.
With a prolonged conflict and resulting disruption to oil and gas production and other economic activities in West Asia, the economic growth of the region will get hampered. Hence, remittances coming to India from West Asia could also get impacted, which amounted to 38 per cent of total remittance inflows India received in fiscal 2024, according to the latest available data from Reserve Bank of India, it said.
“We expect the rupee to average 93.5 a dollar in March 2027 compared with 92.8 in March 2026 amid high volatility. India’s external vulnerability has increased due to the conflict. A widening CAD will mean higher demand for the dollar, while elevated global uncertainty may lead to foreign capital outflows from emerging markets, including India, putting pressure on the rupee,” Crisil said.
“However, we expect the rupee to strengthen from its current levels towards the end of the fiscal, assuming a normalisation of the conflict,” it added.
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