West Asia crisis may trigger supply shock, push inflation higher: Finance Ministry

The Finance Ministry has warned that the ongoing West Asia crisis could trigger a supply shock for the Indian economy and fuel inflation if disruptions in oil supplies persist, according to its monthly economic review for April. Damage to oil and gas production and supply infrastructure in the Gulf region may take several months to repair. The ministry notes that a gradual recovery in oil supplies may not be supported by a weak kharif season due to below-normal monsoon conditions predicted by the IMD, potentially exacerbated by El Nino conditions. This could lead to price shocks in headline inflation spilling over to core inflation through cost-push channels. The India Meteorological Department (IMD) has indicated possible El Nino conditions, which may result in lower rainfall across several regions. While India’s economy recorded real GDP growth of 7.6% in the previous fiscal year, supporting a projected growth range of 7–7.4% for FY2026-27, external challenges—particularly from the West Asia conflict—cloud the outlook. Rising prices and concerns over demand compression are already visible, with higher input costs in the petroleum sector expected to affect multiple industries. Firms may pass on these costs to consumers, shifting inflation toward a cost-push pattern. The conflict could also disrupt trade and financial flows, though India’s strong domestic demand, policy support, and resilient financial system provide some cushion. However, uncertainty remains about whether these buffers will suffice if energy and fertilizer supply disruptions persist long-term. Weather-related risks, including below-normal rainfall from El Nino, could further widen fiscal and external deficits, impacting economic growth.