The Chief Economic Adviser (CEA) V Anantha Nageswaran said that crude oil prices at $90 per barrel will not have a significant impact on the economy, but if it climbs to $130 per barrel for two to three quarters, it will shave off 100 basis points from GDP growth and increase inflation.
The CEA made these remarks before the Parliamentary Standing Committee on Finance on March 2. The Committee’s report on Demands for Grants (2026-27) of the Ministry of Finance (Departments of Economic Affairs, Expenditure, Public Enterprises and Investment & Public Asset Management) was tabled in Parliament on Tuesday.
“Even at $130 per barrel, if the price of oil remains at that level for about two to three quarters, then the macroeconomic impact is significant. CPI inflation will rise towards 5.5%. Real GDP growth will decrease from 7.4% to 6.4%. The current account deficit will increase from 1.2%, where we currently are, to around 3.2%. The fiscal deficit may rise from 4.4% to 5.6%,” the CEA said in oral evidence to the Committee on how the government plans to mitigate the “triple whammy” of surging crude prices, market volatility, and maritime delays caused by the West Asian conflict, and strategy to protect domestic fuel prices.
“The impact will therefore remain a function of both the level and the persistence of that level over at least two quarters or more,” the CEA said.
The finance ministry has conducted some scenario analysis to gauge the impact of the current conflict in West Asia on the economy with three prices of oil: $90 per barrel, $110 per barrel, and $130 per barrel.
The CEA said that the ultimate impact will depend on how long these prices remain relevant. “If the shock is short-lived and temporary, then even if it escalates to $130, it will not matter,” he said. The analysis suggested that, up to $ 90 per barrel, the macroeconomic assumptions for FY27 of real GDP growth of 7.4%, inflation at about 2%, CAD between 1-1.2% and fiscal deficit of 43%-4.4% remain feasible.
He further said that remittances will also be impacted. If oil rises to $130 per barrel, the projected current account deficit of 3.2% already factors in potential disruptions in GCC economies, especially given Iran’s ongoing attacks in the region.
The CEA noted that the Economic Survey pointed out that, notwithstanding the fundamentals, the rupee was impacted last year and depreciated by about 7% against the US dollar. This was due to two factors: the capital outflows due to the US tariffs and the lack of an AI and semiconductor play in Indian stocks. “…we anticipate that once the current geopolitical situation in the Persian Gulf stabilises, these long-term developments augur well for both India’s exports and capital inflows, which will ease the pressure on the Indian Rupee in 2026-2027,” the CEA said.
India imports around 87% of its crude oil requirement, and about 46% of it transits through the Strait of Hormuz. As per the Reserve Bank of India, if crude oil prices are higher by 10% than the baseline, and assuming full pass-through to domestic product prices, inflation could rise by 30 basis points, and growth may be lower by about 15 basis points.
The Committee, in its report, noted with serious concern the potential for a “triple whammy” of surging crude prices, market volatility, and maritime delays arising from the West Asian conflict. To ensure long-term stability, the Committee recommended that the Department of Economic Affairs develop a Strategic Energy Mitigation Framework to protect the economy from oil shocks exceeding the $90 threshold.
