India’s high-growth economy gets a Middle East oil shock in World Economy News 08/04/2026 It wasn’t too long ago that India’s central bank, the Reserve Bank of India (RBI), described the country’s high growth-low inflation environment as a “Goldilocks” moment. But that optimism has proved ephemeral as the ongoing war in the Middle East and the accompanying disruption to oil markets gives its world-beating growth story an unexpected jolt. The impact is most starkly visible on the Indian currency, which has hit record lows and is down nearly 10% against the US dollar in the last year. There’s been some relief in the rupee’s slide after the central bank intervened to curb speculation, but that is likely to be temporary. Many experts are pencilling in sharper declines ahead, depending on how long the conflict lasts. In a worst-case scenario where the war persists for much of 2026, the repercussions could be “catastrophic” for the rupee, which could plunge beyond 110 to the dollar, according to Bernstein, a global equity research firm. But even if it ends much quicker, there’s further pain ahead. Persistent weakness in the currency can negatively impact everything, feeding into higher prices for consumers, lower corporate margins, bigger government deficits and thinner capital flows into the stock market. India’s benchmark equity indices are down some 12% already since the beginning of the year amid an outflow of foreign money, eroding the wealth effect – the behavioural tendency to spend more with a rise in the value of assets – that was prodding the rich to keep the consumption engine running. The global tensions have also begun to negatively weigh on the country’s inflation and growth outlook. Higher import and logistics costs and a possible decline in remittances from the 10 million Indians who live in the Gulf could end up having a “significant” impact on some of these metrics, India’s finance ministry said in its latest monthly review. It added that the recent shocks are being transmitted through “supply constraints, and pressures across sectors, with early indications of some moderation in economic activity”. Gross domestic product (GDP) was previously forecast to expand at 7% levels in financial year 2026-27. But the crisis in the Gulf could shave off growth by as much as 1%, as per various brokerages. Given that this comes in the backdrop of recent downgrades to India’s GDP (following changes to the statistical base year), India’s ambitions to cross Japan to become the world’s fourth largest economy will most certainly be further pushed back. As for inflation, food costs have begun to spike but the conflict has not driven up prices at the pumps so far, with the government absorbing the price shock. India has cut excise duties on petrol and diesel to protect consumers ahead of key state elections, and also imposed windfall taxes on exports. The energy shock, however, is multifaceted. India is the world’s third-largest importer of crude, but 60% of its natural gas and over 90% of LPG imports (it is the world’s second largest consumer) also originate from the region, which makes this crisis potentially severe for Delhi. A quarter of its fertiliser imports are also from Middle Eastern countries and supply disruptions could pose problems for its vast agrarian economy, particularly in the upcoming sowing season amid the rising probability of the El Niño weather phenomenon, Care Edge Ratings said in a note. “The bigger concern for India’s