EY warns of slower GDP growth and rising inflation if conflict drags into FY27
April 1, 2026: A prolonged escalation in the Middle East conflict involving the United States, Israel and Iran is emerging as a significant risk to India’s economic outlook. According to the latest report by Ernst & Young, India’s real GDP growth could decline by nearly one percentage point in FY27 if disruptions persist, while retail inflation may rise by around 1.5 percentage points from baseline projections.
The report highlighted that key employment-driven sectors such as textiles, chemicals, fertilisers, cement, paints, and tyres are particularly vulnerable to rising energy costs and supply chain disruptions. A slowdown in these industries could weaken job creation and reduce consumer demand, amplifying the broader economic impact. India’s heavy dependence on energy imports—covering nearly 90% of its crude oil needs—further increases its exposure to global price volatility.
Global oil markets have already been shaken, with crude prices surging sharply since the conflict began. The report cautioned that even if tensions ease, restoring stability in supply chains will take time. It suggested that the Government of India may need to adopt countercyclical measures and strengthen buffers like the Economic Stabilization Fund to cushion the impact. Meanwhile, the Organisation for Economic Co-operation and Development has also projected a moderation in India’s growth, reflecting rising global economic uncertainty.