India’s growth outlook firm as global volatility rises: Finance Ministry

India’s economic outlook remains strong even as escalating geopolitical tensions in West Asia threaten to inject greater volatility into global markets, the Finance Ministry said in its latest Monthly Economic Review (MER).

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The ministry projected real GDP growth of 7.0-7.4% for FY27, supported by strong domestic demand, stable macroeconomic fundamentals, and continued policy reforms. However, it cautioned that the global economic environment may be entering a more unstable phase marked by geopolitical conflict, trade uncertainty, and financial market volatility.

In a striking observation in the preface to the review, the ministry warned that the global environment over the coming decades could resemble the inter-war period of the twentieth century, when geopolitical rivalries and economic fragmentation created persistent uncertainty.

Such conditions would make macroeconomic stability itself a valuable global asset, the ministry noted, emphasising the need for steady growth, fiscal prudence, and financial stability in an increasingly unpredictable world.

The warning comes amid escalating tensions in West Asia following the United States–Israel strikes on Iran and the resulting disruption of shipping routes around the Strait of Hormuz, a key global energy chokepoint through which roughly 20% of global oil supplies pass.

The review noted that Brent crude prices have already risen about 9% to nearly $80 per barrel, while global liquefied natural gas prices have surged sharply as markets react to supply risks.

Given that India imports about 88.6% of its crude oil requirements, sustained disruptions could raise imported inflation, pressure the rupee, and widen the current account deficit if energy prices remain elevated for a prolonged period.

According to the Reserve Bank of India (RBI), cited in the review, a 10% increase in crude oil prices could raise inflation by about 30 basis points if fully passed through to domestic prices.

Despite these risks, the ministry emphasised that India enters this period of uncertainty with strong macroeconomic buffers. Foreign exchange reserves remain comfortable and are sufficient to cover more than 11 months of goods imports, while the current account deficit stood at 0.8% of GDP in the first half of FY26.

Inflation also remains moderate, with the new Consumer Price Index (CPI) series showing inflation at 2.75% in January 2026.

Economic momentum remains broad-based, with high-frequency indicators pointing to continued strength in manufacturing and services, supported by strong order books, healthy credit growth, and improving demand conditions.

The review also highlighted that India has significantly diversified its crude import sources, expanding the number of supplier countries from 27 a decade ago to more than 40, which helps mitigate supply risks.

Nevertheless, policymakers warned that the current geopolitical crisis underscores the importance of building natural resource buffers and maintaining fiscal flexibility in the coming years. The ministry also called for periodic stress-testing of the balance of payments to prepare for potential external shocks.

At the same time, the review pointed to emerging opportunities amid global uncertainty. India’s continued progress on trade agreements and export diversification could help expand market access for domestic firms and reduce dependence on specific regions.