Prime Minister Narendra Modi is looking to calm market jitters over fuel supplies as the economic shockwaves from the regional war begin to ripple through the Indian economy.

The war has created “unprecedented economic, national security, and humanitarian pressures” for India, he told the parliament, while cautioning that the adverse effects of the war will last for a prolonged period. He compared the scale of the upcoming challenges to the COVID-19 pandemic and urged national and state authorities to tackle them in tandem.

Modi highlighted that strong macroeconomic fundamentals are able to withstand the challenges, while noting that the government has made arrangements to secure energy and fertilizer supplies to deal with the shortages.

Buffering shocks: India currently holds about 5.3 mn tonnes of strategic crude reserves and is working to expand capacity to 6.5 mn tonnes, Modi said while highlighting the diplomatic efforts to secure passage of India-bound cargo through the Strait of Hormuz. India has diversified its energy import base from 27 to 41 countries over the past 11 years, while scaling up domestic buffers including higher ethanol blending, renewable energy capacity, and coal output, he said.

Counterview: Despite these assurances, India’s crude reserves of 5.3 mn tonnes are enough to cover five days of demand at current levels, according to the government's own admission. India's crude imports were already down about 23% y-o-y between 1 and 18 March. A prolonged conflict will impact India’s growth forecast, increase inflation and further reduce the value of the INR.

Impact on growth

India’s GDP forecast slashed: Goldman Sachs has cut its 2026 growth forecast for India by 60 bps to 5.9%, marking the first major downward revision by a global agency since the Middle East conflict began. The firm had already trimmed its pre-war projection of 7% down to 6.5% on 13 March, but increased concerns over energy availability have forced a deeper cut, Hindu Businessline reports.

The pattern: The change in forecast is driven by rising oil prices and increased energy supply disruption through Hormuz. The bank expects India’s inflation to expand to 4.6%, up from its earlier projection of 3.9% for 2026. It also expects the central bank to hike the repo rate by 50 bps to offset inflationary pressures posed by a deprecating INR, which has fallen 4% against the USD this year.

PMI at a three-year low

India’s private sector expanded at its weakest pace in over three years in March as price shocks from the US-Israeli war on Iran dampened domestic demand, according to HSBC India’s Manufacturing Purchasing Managers’ Index. The preliminary PMI slumped to 56.5 this month, falling well below the median forecast of 59.0 and dropping from February’s reading of 58.9.

Manufacturing took the hardest hit: The manufacturing output was at its lowest rate in over four years as the regional war stoked market instability, rising input costs, and consumer uncertainty. The services industry, which contributes to a major part of India’s GDP, also declined, with its PMI easing to 57.2 from 58.1 in February.

Inflationary pressures are mounting: Input costs for oil, energy, food, aluminum, steel, and chemicals rose at their fastest pace since June 2022, highlighting the growing fallout from the war. “Cost pressures intensified, but companies are absorbing part of the increase by squeezing margins,” HSBC's chief India economist Pranjul Bhandari said.

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