India faces downside risks to its growth forecast of 7.0% to 7.4% for the next fiscal year starting April 1, due to higher energy costs and supply disruptions stemming from the Middle East conflict, according to its monthly economic report released on Saturday.
The conflict, which began a month ago after the U.S. and Israel attacked Iran, has disrupted a key shipping route through which 20% of the world’s oil passes, pushing up energy and freight costs and straining supply chains.
This is raising concerns over inflation and growth in India, the government review said.
High-frequency data for April, and possibly May, should provide a clearer picture of growth prospects for the new financial year, India’s chief economic adviser V Anantha Nageswaran wrote in the report.
He said the current account deficit, which has already widened to 1.3% of GDP in the Oct-Dec quarter of the current fiscal year, will significantly worsen the next fiscal year.
India will need to provide immediate, targeted relief to the most affected and vulnerable businesses and households, the report said.
Domestic demand has remained relatively stable so far, but risks to growth are rising, particularly in sectors reliant on imported inputs.
The Indian rupee weakened to about 95 to the U.S. dollar in March amid capital outflows and higher import costs linked to the energy shock.
