The Indian economy faced a series of domestic and global shocks during the ongoing decade, with the West Asia crisis being the latest one. Unlike the Covid-19 pandemic, which had simultaneously impacted demand and disrupted supply for an extended period, the West Asia crisis has manifested mainly as a supply shock, pushing up energy prices and input costs, even as domestic demand has remained relatively resilient so far. A prolonged supply shock is likely to translate to higher inflation and tighter margins, which could weaken incomes, consumer confidence and investment, translating to a demand shock, and stagflationary outcomes. ICRA has lowered its FY2027 GDP growth forecast to 6.5% from 7.1% and raised its CPI inflation projection to 4.5% from 4.0%, assuming an average crude oil price of $85/barrel for the fiscal.

EXHIBIT: Contribution of GDP components

Note: Data for FY2018-23 is based on 2011-12 series and that for FY2024-27 is based on 2022-23 series; SRE/SAE: Second Revised/Advance Estimate; FRE: First Revised Estimate; P: Projected; Source: NSO; CEIC; ICRA Research