Indian economy, govt finances see mounting costs from Iran war

A few months ago, India’s economy was humming along nicely. Inflation was benign and growth was steady — the strongest among the world’s leading economies. Now, India is increasingly counting the cost of the Iran war, which economists say will keep mounting if the deadlock between the US and Iran remains unresolved and the blockage of oil supplies continues. As the world’s third-largest oil importer and consumer, India ships in about 90 per cent of its oil, making its economy one of the most exposed to the war and the prolonged war-related disruptions, which include the effective blockade of the Strait of Hormuz through which a fifth of global oil and gas transit. While India has announced a flurry of measures to contain the impact on the rupee and foreign exchange reserves, the latest of which were from the Reserve Bank of India (RBI) on Friday, analysts say the broader drag on economic growth, inflation and government finances is set to increase so long as oil prices remain elevated. “India is set for a series of supply shocks,” Michael Langham, emerging markets economist at Aberdeen Investments, said. Apart from pressure on oil prices, the country also faces supply disruptions to fertiliser as a result of the Iran war, which will impact key crops like wheat when farmers are already bracing for an El Niño weather phenomenon that often portends drought. “This will all drag on India’s growth outlook, yet the ability of the RBI to look through the energy price shock from the Strait of Hormuz will be increasingly difficult given the overlapping nature of these supply shocks,” Langham said. At the end of last year, India’s central bank governor, Sanjay Malhotra, talked about a “rare Goldilocks” phase for the economy as it headed into 2026. Inflation levels were falling and growth remained relatively strong. The Iran war upended that outlook. India’s oil-and-gas import bill jumped 53pc in April from March, prompting forecasts for the balance of payments (BoP) deficit —