India’s economic growth forecast of 7.0% to 7.4% for the fiscal year beginning April 1 faces significant downside risks as rising energy prices and supply chain disruptions linked to the Middle East conflict weigh heavily on the outlook. The conflict, which erupted a month ago following attacks by the U.S. and Israel on Iran, has severely impacted a crucial shipping route responsible for transporting 20% of the world’s oil. This disruption has driven up energy and freight costs, placing additional strain on global supply chains.
The government’s monthly economic report, released on Saturday, highlighted growing concerns about inflationary pressures and the potential drag on India’s economic expansion. Notably, high-frequency data for April and possibly May will be critical in providing a clearer assessment of growth prospects for the new financial year, India’s chief economic adviser, V Anantha Nageswaran.
In a significant development, the report pointed out that the current account deficit, which expanded to 1.3% of GDP in the October-December quarter of the current fiscal year, is expected to deteriorate further in the upcoming fiscal period. To mitigate the impact, the government will need to offer immediate and targeted support to the most vulnerable businesses and households affected by these economic shocks.
While domestic demand has remained relatively stable so far, the report warns that risks to growth are mounting, especially for sectors dependent on imported inputs. The Indian rupee also weakened to around 95 per U.S. dollar in March, reflecting capital outflows and the increased cost of imports driven by the energy crisis.
