The global economy is once again passing through a period of profound uncertainty. Tensions between Iran and the United States, continuing conflict in West Asia, volatility in energy markets, growing insecurity along maritime trade routes and disruptions to global supply chains have made the economic outlook increasingly difficult to read. Trade tensions were already ave now added a further layer of complexity
An economy such as India, which remains heavily dependent on imported crude oil, cannot remain insulated from these pressures. A rise in oil prices does not affect petrol and diesel alone. Its impact is felt across transportation, freight, fertilisers, aergy shock, therefore, poses a double challenge for India: it raises the import bill while simultaneously intensifying inflationary pressures at home
A growth downgrade, but no reason for despondency
Against this adverse backdrop, the Asian Development Bank has lowered its estimate for India’s gross domestic product growth in fiscal 2026 from 6.9% to 6.6%. At first glance, a downward revision may appear disconcerting. Economic numbers, however, cannot be assessed merely by comparing a new projection with an earlier forecast. The broader global context matters equally.
According to the International Monetary Fund’s July 2026 projections, the world economy may grow by around 3%, while growth in advanced economies is expected to remain limited to about 1.7%. The United States is projected to grow at 2.3%, the euro area at 0.9%, the United Kingdom at 1% and Japan at just 0.6%. China’s growth is estimated at 4.6%, while India is projected to expand by 6.4%.
Seen in this context, India’s likely growth of around 6.4%-6.6% is hardly an ordinary achievement. It underlines the fact that, despite external shocks, the underlying momentum of the Indian economy remains relatively robust.
Expensive crude oil is arguably the most serious immediate risk confronting India. In its July assessment, the IMF flagged the possibility of a significant year-on-year rise in crude oil prices in 2026 and warned of pressure on food prices through higher energy and fertiliser costs.
An increase in fuel prices raises freight costs, which eventually feeds into food, consumer goods and services. Industrial production becomes more expensive, prompting firms to pass on at least part of the additional cost to consumers.
Inflation is not merely a macroeconomic statistic. Its burden falls disproportionately on low- and middle-income households. When a larger share of family income is spent on food, transport and essential services, expenditure on discretionary items declines. This can weaken private consumption and, in turn, affect industrial demand and investment.
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Supply-chain disruptions add to the strain
The impact of tensions in West Asia is not confined to oil prices. Greater insecurity along maritime trade routes may force shipping companies to adopt longer routes. Freight and insurance costs rise, while delivery times increase.
Supply-chain disruptions are particularly damaging to industries dependent on imported raw materials or components. Large companies may be able to absorb additional costs for a period, but the situation is considerably more difficult for micro, small and medium enterprises.
MSMEs often operate with limited working capital. If raw material costs rise, transportation becomes more expensive and buyers continue to demand lower prices, margins can shrink rapidly. The problem may eventually cease to be one of profitability and become a question of liquidity. A business may remain operational on paper but still struggle to generate enough cash for day-to-day needs.
It is in this context that the Emergency Credit Line Guarantee Scheme 5.0 assumes significance. According to the Union government, more than 4.11 lakh guarantees had been issued under the scheme by July 2026, with the guaranteed amount exceeding ₹1.55 lakh crore. In numerical terms, about 98% of the guarantees went to MSMEs.
What is keeping India moving?
The obvious question is: when oil is expensive, supply chains are under pressure, global trade is slowing, and geopolitical risks are intensifying, why is India still growing at a relatively faster pace?
The first answer lies in India’s large domestic market. The Indian economy is not solely dependent on foreign demand. Its vast population and broad consumer base provide an internal cushion. Private consumption is certainly under pressure, but its underlying momentum has not disappeared. The IMF too has identified resilient private consumption and strong activity in the services sector as important drivers of India’s growth.
The secondfinancial services, professional services and other modern segments continue to support both domestic income and exports. Questions may remain about the pace of manufacturing growth, but the strength of services has provided the economy with an important buffer against external shocks
The third pillar is public capital expenditure. Spending on roads, railways, ports, logistics and other infrastructure has an impact far beyond the construction sector. It creates demand for steel, cement, transportation and a wide range of ancillary industries. Better infrastructure can also help reduce production and logistics costs over the longer term.
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Foreign investment offers a positive signal
There are encouraging signs on the foreign investment front as well. India reportedly saw a 44% increase in foreign direct investment inflows in 2025, bringing the total to nearly $38.9 billion and placing the country 11th among global FDI recipients, according to the latest World Investment Report.
This is significant because investors generally become more cautious during periods of heightened global uncertainty. An increase in foreign investment under such conditions suggests that India’s large domestic market, capabilities in services and the potential for manufacturing expansion continue to command investor interest.
One must, of course, avoid reading too much into a single year’s data. Investment flows can be volatile and global capital is highly sensitive to changes in risk perception. Yet the trend remains an important indicator of India’s relative attractiveness.
The difficult balance between inflation and growth
In the months ahead, one of the most difficult policy questions for India will be how to balance inflation management with the need to sustain growth.
If crude oil remains expensive and the rupee comes under pressure, the threat of imported inflation will persist. A sharp increase in food prices could also weaken household consumption. The Reserve Bank of India will then face the challenge of containing price pressures without unnecessarily hurting growth and investment.
The dilemma is particularly difficult because inflation generated by an oil shock cannot be addressed through interest rates alone. Higher policy rates cannot make crude oil cheaper or secure maritime trade routes. An excessively restrictive monetary stance, on the other hand, can dampen private investment and housing demand.
This is why monetary policy will have to work in tandem with fiscal and supply-side measures. Managing fuel-related pressures, improving logistics, ensuring the timely availability of key inputs and supporting vulnerable but rates
It would also be inadequate to focus solely on headline GDP growth. The quality and distribution of growth need closer scrutiny. Are jobs expanding at an adequate pace? Is rural demand improving? Are real household incomes rising? And is private investment gaining enough momentum to complement public capital expenditure?
These questions will increasingly determine the sustainability of India’s growth story.
Strong growth does not mean that all problems have disappeared
A high GDP growth rate does not necessarily mean that the incomes of all sections of society are rising at the same pace. Income inequality, pressure on the rural economy and the financial difficulties of small enterprises remain serious concerns.
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Employment is perhaps the most critical link in this entire economic narrative. If production and national income rise without creating an adequate number of quality jobs, the social impact of growth will remain limited. Expanding opportunities for the young is necessary not only for economic stability but also for maintaining social balance.
A sustained revival in rural demand is equally important. If rural incomes remain weak for an extended period, demand for consumer goods, two-wheelers and products and services supplied by small businesses could suffer.
India, therefore, cannot afford complacency merely because its growth rate compares favourably with those of other major economies. High growth provides policy space and confidence; it does not eliminate structural challenges.
India’s relative advantage cannot be ignored
Yet, despite these weaknesses, it would be equally mistaken to view the Indian economy only through the prism of risks.
When the global economy is expected to grow at around 3%, advanced economies at roughly 1.7%, and the euro area and Japan remain trapped in distinctly weak growth, India’s projected expansion of around 6.4%-6.6% deserves attention. Even China’s estimated growth of 4.6% is significantly below India’s likely pace.
India is not immune to global crises, but neither has it come to a standstill in the face of them. That distinction defines the country’s current economic story.
The heat from crude oil could slow the economy. Geopolitical tensions may make the road more difficult. Supply-chain disruptions can raise production costs, while inflation can erode domestic demand. These are real risks and must not be understated.
At the same time, a vast domestic market, a resilient services sector, sustained infrastructure investment and improving investment prospects continue to provide the Indian economy with important
The real test will be whether India can convert this relative growth advantage into durable gains in employment, household incomes, private investment and productivity. If it succeeds, the present phase will be remembered not merely as one in which India grew faster than most major economies, but as a period in which it strengthened its economic foundations while navigating an unusually turbulent global environment.
Satish Singh– Senior Banking and Economic Columnist
Email: [email protected], Mobile: 8294586892
(The opinions articulated in this article are personal)
