Kamal Ghorui
India’s growth trajectory is expected to remain steady despite the ongoing Middle East crisis, that has sent ripples across the globe. In its latest report, SBI Research said that the country is navigating oil shocks and the Iran war from a “situation of strength”, projecting GDP growth at 6.8% to 7.1% in FY27.The report noted that India entered the current phase on firm footing. “The country has entered the global geo-political conflict from a situation of strength this time with FY26 growth at 7.6%, similar to Russia and Ukraine crisis, when India was expanding at more than 9%,” it said.Strong domestic fundamentals are also seen as a key buffer. “India has a strong Banking sector,” the report stated, while also calling for “a comprehensive package to support Balance of Payments and hence Rupee.” At the same time, it flagged potential risks, noting that “fears of Super El Nino could cloud growth estimates.” Inflation is expected to average 4.5%, with the fiscal deficit projected at 4.5–4.6%. The ongoing conflict is exerting pressure across sectors. SBI Research described “multiple vortexes of headwinds” affecting agriculture, MSMEs, consumption and global supply chains. However, it also pointed to “green shoots” that could help India reposition itself within global value chains.Overall, the report maintained that India’s growth story continues to demonstrate resilience, with growth likely to remain within the 6.8% to 7.1% range despite global and regional challenges. For the Reserve Bank of India, it highlighted a “growth-inflation paradox” and said there is “little room for a rate decision at this juncture.” It expects rates to remain unchanged “till the full impact of the war, as also evolving climate patterns become clear, implying a lower for longer regime to continue.”
US outlook: Oil shocks may test growth, but impact could be different
Looking at the global picture, the report said oil shocks in the past have often pushed the United States into recession, though the current situation may unfold differently. “Unlike during earlier oil shocks, US households are receiving substantial tax refunds, and the US is energy self-sufficient, in contrast to earlier episodes. Thus, as an oil exporter, the US now keeps higher energy spending at home when prices rise.”As geopolitical tensions intensify and energy markets are strained, concerns over a potential slowdown in the US economy. While such circumstances have historically resulted wide-ranging repercussions, SBI Research suggested that the present cycle may have only limited, though noticeable, implications for India.The report highlighted many examples, including the 1973 oil embargo, the 1979 Iran crisis, the Gulf War and the 2008 global financial crisis, where sharp increases in crude prices were followed by economic downturns in the US. However, “this time may be different” the report said due to changes in the US economy.With the US now moving towards energy self-sufficiency and operating as a net energy exporter, higher oil prices may circulate more within the domestic economy rather than creating the same level of external strain seen earlier. It also pointed to support for US households through substantial tax refunds, which could help sustain consumption and cushion or delay the impact of any slowdown.Even so, the report cautioned that risks persist. Ongoing tensions in the Middle East and disruptions to global supply chains continue to add uncertainty, and while the traditional link between oil shocks and US recessions may weaken, it has not disappeared entirely.It also highlighted shifts in global investment patterns, stating that “Dubai and Abu Dhabi financial centres are entering a period of uncertainty,” with some global investors and NRIs reassessing their exposure to Dubai. “This presents a good opportunity for IFSC GIFT City as a stable global financial destination.”Air travel patterns could also shift, with parts of Middle East and UAE airspace becoming riskier. India and China may emerge as alternative transit hubs, though the report cautioned that this “may require investments in airport infrastructure, connectivity and passenger experience.”On interest rates, the report said many central banks paused in 2026 after rate cuts in 2025 and are now “reassessing the glide path afresh if a promising deal… is brokered for peace in the raging West Asia, duly incorporating the impact of domestic macros, trade headwinds, fiscal constraints and currency perils.”
