West Asia war likely to take a toll on economic growth in Q4FY26
Q4 GDP growth seen at around 7%; official data to be released on June 5
- May 19, 2026,
- Updated May 19, 2026 3:31 PM IST
Economic activity is seen to have slowed down in the fourth quarter of FY26 as the West Asia war began, with GDP growth seen at about 7% by several economists. GDP growth in the current fiscal is already estimated to slow down to below 7% this fiscal, as the full impact of the conflict was registered in the domestic economy.
The Indian economy is estimated to have grown by 7.8% in the October to December 2025 quarter. As per the second advance estimates, which were based on the new GDP series, real GDP growth in FY26 is estimated at 7.6%. Official data on the fourth quarter GDP estimates, as well as the provisional GDP estimates for FY26, will be released by the Ministry of Statistics and Programme Implementation on June 5.
The West Asia war between the US-Israel and Iran began on February 28, soon leading to the closure of the Strait of Hormuz and attacks on several energy production facilities in the region, which within weeks impacted India’s energy requirements as well as foreign trade.
MUST READ | Amid West Asia uncertainty, RBI may deliver bigger dividend cushion to govt
India Ratings and Research has pegged GDP growth at 6.7% in the fourth quarter of 2025-26 and at 7.6% for the full fiscal year 2025-26. For FY27 as well, it has pegged GDP growth at 6.7% with Q1 growth estimate at a similar number. It believes that higher fuel and food prices due to the West Asia conflict’s uncertainty and the likely impact of evolving El Niño on agriculture from mid-2026 will pull down GDP growth in FY27.
“A USD10/bbl increase in crude oil prices could reduce GDP growth by 44bp, while a 10% reduction in capex could lower GDP growth to 6.0%,” said Megha Arora, Director—Economics, India Ratings & Research. The agency in its baseline forecast has assumed oil at USD95/bbl. Arora said that the impact of El Nino on the economy is likely to be visible in the second quarter of the current fiscal.
DO CHECKOUT | West Asia war: Here's why your borrowing rates may go up this year
Rating agency ICRA has estimated Q4FY26 GDP growth at a three-quarter low of 7% and FY26 GDP growth at 7.5%. “A slower expansion across the industrial at over 7.3% in the fourth quarter and of the services sector at over 8.5% is expected to have moderated the GDP growth, even as the performance of the agriculture sector at about 2.1% is likely to have improved slightly,” it said.
The agency has assumed crude oil prices to average at about $95/bbl this fiscal and has lowered its FY27 GDP growth forecast to 6.2%.
An SBI Research Report has pegged Q4FY26 real GDP growth at closer to 7.2% and nowcasted full year 2026-27 GDP growth rate of 6.6%. FY26 GDP growth is likely to be at 7.5%, it had said.
Economic activity is seen to have slowed down in the fourth quarter of FY26 as the West Asia war began, with GDP growth seen at about 7% by several economists. GDP growth in the current fiscal is already estimated to slow down to below 7% this fiscal, as the full impact of the conflict was registered in the domestic economy.
The Indian economy is estimated to have grown by 7.8% in the October to December 2025 quarter. As per the second advance estimates, which were based on the new GDP series, real GDP growth in FY26 is estimated at 7.6%. Official data on the fourth quarter GDP estimates, as well as the provisional GDP estimates for FY26, will be released by the Ministry of Statistics and Programme Implementation on June 5.
The West Asia war between the US-Israel and Iran began on February 28, soon leading to the closure of the Strait of Hormuz and attacks on several energy production facilities in the region, which within weeks impacted India’s energy requirements as well as foreign trade.
MUST READ | Amid West Asia uncertainty, RBI may deliver bigger dividend cushion to govt
India Ratings and Research has pegged GDP growth at 6.7% in the fourth quarter of 2025-26 and at 7.6% for the full fiscal year 2025-26. For FY27 as well, it has pegged GDP growth at 6.7% with Q1 growth estimate at a similar number. It believes that higher fuel and food prices due to the West Asia conflict’s uncertainty and the likely impact of evolving El Niño on agriculture from mid-2026 will pull down GDP growth in FY27.
“A USD10/bbl increase in crude oil prices could reduce GDP growth by 44bp, while a 10% reduction in capex could lower GDP growth to 6.0%,” said Megha Arora, Director—Economics, India Ratings & Research. The agency in its baseline forecast has assumed oil at USD95/bbl. Arora said that the impact of El Nino on the economy is likely to be visible in the second quarter of the current fiscal.
DO CHECKOUT | West Asia war: Here's why your borrowing rates may go up this year
Rating agency ICRA has estimated Q4FY26 GDP growth at a three-quarter low of 7% and FY26 GDP growth at 7.5%. “A slower expansion across the industrial at over 7.3% in the fourth quarter and of the services sector at over 8.5% is expected to have moderated the GDP growth, even as the performance of the agriculture sector at about 2.1% is likely to have improved slightly,” it said.
The agency has assumed crude oil prices to average at about $95/bbl this fiscal and has lowered its FY27 GDP growth forecast to 6.2%.
An SBI Research Report has pegged Q4FY26 real GDP growth at closer to 7.2% and nowcasted full year 2026-27 GDP growth rate of 6.6%. FY26 GDP growth is likely to be at 7.5%, it had said.