The geopolitical developments have introduced a complex and multi-layered set of risks for India, given its position as a major energy importer with strong trade, investment, and remittance linkages with the West Asia region, the Monthly Economic Review for March released by the Department of Economic Affairs of the Finance Ministry said.
New Delhi: The near-term outlook remains uncertain, with external shocks particularly the West Asia crisis posing downside risks to growth through elevated input costs and potential supply disruptions, the Finance Ministry said in a report on Saturday.
However, the report said, strong macroeconomic fundamentals and robust domestic demand may help cushion the impact.
The geopolitical developments have introduced a complex and multi-layered set of risks for India, given its position as a major energy importer with strong trade, investment, and remittance linkages with the West Asia region, the Monthly Economic Review for March released by the Department of Economic Affairs of the Finance Ministry said.
“While India’s relatively robust macroeconomic fundamentals and sustained policy efforts provide resilience, the evolving situation warrants close monitoring and calibrated policy responses,” it said.
The government’s interventions across energy diversification, agricultural preparedness, inflation conditions, external sector strength, and policy measures support the economy’s ability to absorb near-term disruptions arising from global developments, while ongoing monitoring and calibrated responses remain important in view of evolving conditions, it said.
While these interventions, along with existing macroeconomic buffers, provide some support, the balance of risks remains tilted to the downside.
In this context, continued vigilance and proactive policy measures will be important to mitigate the impact of evolving global uncertainties, it said.
The report further said that the recent oil price shock presents an upside risk to the inflation trajectory in the medium term, as higher energy costs are gradually transmitted into domestic prices, particularly in fuel-intensive sectors.
While supply disruptions have added to cost pressures, selective price corrections in perishables, amid export-related dislocations, point to localised demand-supply imbalances, it said.
“A sustained elevation in oil and gas prices could lead to broader second-round effects through input cost pass-through across sectors. Nonetheless, the Government remains vigilant, with measures underway to ensure adequate domestic energy availability and mitigate potential inflationary pressures,” it said.
Elevated global crude oil prices also pose risks to the merchandise trade balance, while the outlook for remittances also remains sensitive as the Gulf Cooperation Council economies accounted for about 38 per cent of India’s total remittances in FY24 and host nearly half of India’s migrants worldwide, it said.
In an increasingly uncertain global environment, it said, the resilience of the Indian economy will depend on the strengthening of domestic fundamentals.
“This will require sustained focus on structural reforms to enhance competitiveness, achieve efficiency gains, and drive investment. At the same time, emphasis on preparedness, policy coordination, and domestic capacity development will remain important for navigating evolving global uncertainties and supporting growth,” it said.
With regard to the current account deficit, the report said, it widened to 1.3 per cent of GDP in Q3 of FY26, from 1.1 per cent of GDP in Q3 FY25, mainly driven by a larger merchandise trade deficit, notwithstanding continued strong performance in the services sector.
During April-January FY26, it said, gross FDI inflows increased; however, this momentum did not translate into higher net FDI, which remained subdued and has been negative for five consecutive months.
Increased geopolitical uncertainty has dampened global risk appetite; as a result, the portfolio flows remained negative in March 2026. Foreign exchange reserves continue to remain comfortable, providing cover for more than 11 months of goods imports.
Meanwhile, global equity research and brokerage firm Bernstein said .India’s macro outlook faces rising risks amid escalating US-Iran tensions and a sustained spike in crude oil prices,
Even under more moderate assumptions, the outlook remains challenging.
The report expects “realistic chances of inflation breaching 6% this summer,” which could delay monetary easing, with “rate cuts to get pushed for two quarters at the least, and GDP growth to taper.”
Currency pressures are also building, with the report warning that “it is only a matter of time before 97-98 levels for the Rupee are breached” if hostilities persist.
Summing up the broader impact, the report warned that sustained geopolitical stress could materially hit growth, with “the potential to set back the growth by 3-4 years,” adding that even in less severe scenarios, the environment could “shelve a full percentage point off the annual GDP growth.”
Bernstein maintained a cautious stance on markets, advising that “waiting out for clear signals, in such times, is often the best strategy,” amid elevated uncertainty driven by geopolitics rather than fundamentals.