West Asia conflict: CEA flags 2% FY27 CAD, 7%+ growth

Why the West Asia shock matters for India

India’s Chief Economic Adviser (CEA) V Anantha Nageswaran has flagged fresh macro risks from the escalating conflict in West Asia, at a time when policymakers were working with expectations of another year of strong growth. Speaking on May 2, 2026, he said the conflict has arrived just as India was “looking at 7-plus percent growth for another year”.

The concern is not limited to energy prices. Nageswaran pointed to a combination of higher import costs and softer remittance inflows, both of which can strain the external balance. In parallel, the Reserve Bank of India (RBI) has warned that geopolitical tensions and higher oil prices could weigh on growth and inflation in FY27.

What CEA Nageswaran said on growth and crude supply

Nageswaran said authorities are “managing the supply aspects of crude oil right now,” indicating an active effort to address supply-side pressures. While he acknowledged the risks from elevated crude and commodity prices, he maintained that India’s growth trajectory remained resilient, with expectations of over 7% growth despite global uncertainty.

He also played down concerns about India’s dependence on imported crude oil. In his view, switching away from imported crude is not cost-free, since alternative sources of energy can bring their own price challenges.

Oil import dependence: “Alternatives have their own price challenges”

The CEA argued that crude oil import dependence should not automatically be viewed as a vulnerability in isolation. “We don't have to necessarily feel bad about crude oil import dependence. Whatever else we replace it with will have its own challenges with respect to prices,” he said.

This framing matters because policy responses can sometimes be shaped by short-term price spikes. The CEA’s emphasis suggests a focus on managing the current shock while building longer-term resilience, rather than assuming immediate substitution is an easy fix.

External balance risk: CAD seen widening to about 2% in FY27

Nageswaran warned that the combination of higher import prices and weaker remittances could pressure India’s external balance. “High import prices, lower remittances will have an impact on the current account deficit in FY27,” he said.

He projected the current account deficit (CAD) could widen to “around 2% in FY27 from less than 1% in FY26.” In other remarks captured in the Monthly Economic Review context, he also cautioned that the trade deficit could rise significantly in FY27, making CAD management a shared burden for government, households, and businesses.

Inflation risks: temporary spikes, but not past extremes

On inflation, Nageswaran acknowledged upside risks from the external shock, particularly if cost pressures pass through into domestic prices. He added that a below-normal monsoon or cost pass-throughs could trigger a temporary spike, but suggested it would not resemble the high-inflation episodes seen in the past. “It will still not be the kind of inflation that we got used to,” he said.

In Washington at the US-India Economic Forum 2026, he also said the shock is not limited to fuel and can lift production costs across critical inputs, requiring policymakers to manage inflation risks without undermining growth.

What RBI is projecting for FY27 growth and inflation

The RBI has already built war-related risks into its messaging. It retained its FY26 GDP growth projection at 7.6% but set FY27 growth at 6.9%, with quarterly estimates of 6.8% in Q1, 6.7% in Q2, before rising to 7.0% in Q3 and 7.2% in Q4.

For inflation, the RBI projected CPI at 4.6% in FY27, with quarterly estimates of 4.0% (Q1), 4.4% (Q2), 5.2% (Q3), and 4.7% (Q4). Core inflation is projected at 4.4%.

Oil price signals: landed costs near $110 to $113

Energy market data points cited in the reports show why policymakers are focused on the external shock. India’s landed cost of crude oil rose sharply, touching about $113 per barrel in March, with April still elevated near $110.

Separately, India’s crude basket price was reported at $111.93 per barrel in March, up from $19.01 in February. Economists have warned that with crude hovering above $100 per barrel, the risk of pass-through to consumers increases, and the shock can spread beyond fuel into fertilisers, petrochemicals, and gas.

Scenarios: what $100 to $130 oil could mean

Private forecasters have mapped a range of outcomes under different oil-price assumptions. CareEdge Ratings said that if crude averages around $100 per barrel, India’s FY27 GDP growth could slow to 6.5% and inflation could rise above 5%. Under its assumptions, when crude was in the $10-70 range, growth was estimated at 7.2% and inflation at 4.3%.

The CEA also laid out a stress case to the Parliamentary Standing Committee on finance: sustained oil prices around $130 per barrel for two to three quarters could push retail inflation to 5.5% in FY27 and drag growth down to 6.4%. In that stress scenario, the CAD was projected around 3.2% and the fiscal deficit around 5.6%.

Key numbers to track

CareEdge oil-price sensitivity table

Market and transmission channels policymakers are watching

Nageswaran identified multiple transmission channels from the conflict: supply disruptions in oil, gas, fertilisers and exports; elevated import prices; rising logistics costs; and a potential drop in remittances from Indians working in Gulf economies. In the broader assessment, risks also include imported inflation, energy and commodity supply chain disruptions, stress on exporting businesses, and pressure on the rupee if the CAD widens.

The fallout has already been visible in financial-market indicators cited in the reports: foreign investors pulled out $13.3 billion in March, and the rupee weakened over 4% against the US dollar since the conflict began, closing at 94.81 on Friday.

What comes next: data watch and policy priorities

In the finance ministry’s Monthly Economic Review context, Nageswaran said clearer trends would emerge from high-frequency data for April and May, noting that March figures can be distorted by year-end adjustments. The review also warned that persistently high oil and gas prices could trigger second-round inflationary effects across sectors, weighing on consumption and investment if not managed effectively.

The CEA has also argued for reprioritising government spending, calling for targeted relief for vulnerable households and businesses, alongside building long-term strategic buffers in key commodities beyond energy.

Conclusion

The CEA’s message is that India’s growth outlook remains strong but is now exposed to a tougher external environment, led by higher energy costs and potential pressure on remittances. With the CAD projected to widen to around 2% in FY27 from less than 1% in FY26, and with RBI projections pointing to slower FY27 growth and a watchful inflation stance, April and May high-frequency data will be closely tracked for early signs of spillover.