West Asia conflict: Crisil sees FY27 growth at 6.6%

A conflict shock that is now showing up in data

A prolonged conflict in West Asia and an effective closure of the Strait of Hormuz for over two months are emerging as a key macro risk for India, with spillovers into energy, trade and supply chains. Crisil Intelligence described the situation as the “largest energy shock on record” and said the downside risks to India’s economy have begun to materialise. The agency warned that normalisation could take time due to damage to oil and gas infrastructure in West Asia, even after the route reopens. The shock, it added, extends beyond crude into freight and insurance costs, supply chains and fertilisers. With India’s manufacturing sector reliant on imported inputs, the report expects a direct hit to costs and operations. The combined pressure is now being reflected in forecasts for growth, inflation, external balances and currency stability in fiscal 2027.

Why the Strait of Hormuz disruption matters to India

The Strait of Hormuz is a critical route for global energy flows, and the current disruption has tightened supply and lifted prices for crude oil and gas. Crisil said the closure has created the largest energy shock on record, with the impact amplified by damage to energy infrastructure. Higher energy prices typically transmit into the economy through costlier transport, power and industrial feedstock. Crisil also flagged spillovers into fertilisers, which can affect agriculture costs and, in turn, food inflation. The same disruption pushes up shipping, freight and insurance expenses, raising landed costs for a wide range of imports. These channels matter for India because they hit both the current account via a larger import bill and domestic demand via higher prices.

Crisil’s FY27 call: slower growth, higher inflation

Crisil expects India’s real GDP growth to slow to 6.6% in FY27, compared with 7.6% in FY26, citing elevated crude and commodity prices, weaker global demand and supply chain disruptions. It also flagged the risk of a below-normal monsoon linked to emerging El Niño conditions, which could add to inflation pressures and weigh on consumption. On inflation, Crisil projected average CPI inflation at 5.1% in FY27, up from 2.0% in FY26. The report also warned that export growth could be stifled by trade bottlenecks and weakening global demand, while import-dependent manufacturing could face sharper stress. Remittances are another risk channel, as West Asia accounts for about 38% of remittances to India, according to Crisil.

What is driving the downgrade cycle across forecasters

Crisil is not alone in cutting growth expectations. The material provided shows several agencies revising projections downward due to the same energy and supply shock. Goldman Sachs reduced its real GDP growth forecast to 5.9% for calendar year 2026, from a pre-war expectation of 7%. Moody’s Ratings cut its FY27 forecast to 6% from 6.8%, citing weaker private consumption amid higher energy prices. Standard Chartered lowered its FY27 GDP growth forecast to 6.4% from 7%, and raised its FY27 inflation estimate to 4.7% from 4.1%, attributing the rise largely to crude oil.

Transmission channels: trade, costs, remittances, and agriculture

Higher crude, gas and fertiliser prices raise India’s import bill and feed into domestic costs for manufacturing and transport. Crisil said export growth could weaken due to global trade disruption and softer global demand, while supply bottlenecks further constrain shipments. Standard Chartered noted that exports, including to the Middle East, could be affected by the Strait of Hormuz closure, and the material cited that around 14% of India’s exports are to the Middle East. On remittances, Crisil flagged risk from prolonged tension because West Asia contributes about 38% of remittances. Agriculture is a key swing factor as well: Crisil linked downside risks to a likely below-normal monsoon associated with emerging El Niño conditions. Combined, these channels increase the probability of slower growth with higher inflation.

Corporate and sectoral stress points flagged by ratings agencies

Credit ratings commentary in the material suggests India Inc has been resilient so far, with upgrades still outpacing downgrades in FY26. But risks are rising if the conflict prolongs and energy and gas availability remain disrupted. ICRA said around 45% of India’s import basket comprises oil and gas, gold, diamonds and fertilisers, with a significant share linked to West Asia, and it also noted the region accounts for about a third of remittances and nearly 15% of exports. Sector exposure highlighted includes fertilisers, gems and jewellery, airlines, basmati rice, downstream oil and gas, ceramics and MSMEs, where input costs and supply disruptions can compress margins. Crisil warned that if the conflict goes on for four to five months, revenue growth could dip by about 2% and operating margins could slip by 150 basis points.

Currency, external balances, and the policy challenge

The wider material points to pressure on the rupee and external buffers during the episode. It cited the rupee falling to 95.21 per dollar on March 31, and reported that the RBI deployed more than $10 billion to stabilise the currency. Foreign exchange reserves were cited as falling from a peak of $128.49 billion in February to below $100 billion, alongside foreign portfolio outflows of over $1 billion adding to pressure. The World Bank’s South Asia Economic Update projected India’s growth to decelerate to 6.6% in FY27, and noted that adequate foreign exchange buffers and a well-capitalised banking system could mitigate the overall impact. It also projected the current account deficit may rise to 1.8% of GDP in FY27 due to a higher energy import bill.

Key numbers to track

Why this matters for markets and investors

For equity markets, the macro mix of higher inflation and slower growth matters because it can squeeze corporate margins and delay investment decisions. Crisil explicitly linked the growth slowdown to elevated crude and commodity prices, weaker demand and supply disruptions, and also cautioned on consumption if household budgets tighten. Ratings agencies highlighted that energy-intensive sectors and those with limited ability to pass on costs may face sharper margin pressure. The material also points to stress via currency volatility, which can amplify imported inflation and raise the rupee cost of energy and other inputs. Investors tracking FY27 earnings need to watch energy prices, logistics costs, and sector-specific disruptions, especially where gas availability is a binding constraint.

Conclusion

Crisil’s assessment frames the West Asia conflict and the Strait of Hormuz disruption as a multi-channel shock that is already affecting India’s growth-inflation outlook for FY27. With GDP growth projected at 6.6% and CPI inflation seen at 5.1%, the key risks sit around energy and fertiliser prices, trade bottlenecks, remittance exposure and monsoon uncertainty. The next signals for markets will come from how quickly energy routes normalise, the extent of infrastructure repair in West Asia, and how global demand holds up as trade disruptions persist.