A review of insights from SBI Research, PL Asset Management, and CRISIL Ratings reveals a common theme: while India’s resilience is evident, it becomes increasingly reliant on policy interventions as global threats intensify.
Consumers shielded, but at a fiscal expense
The core of India’s immediate reaction to the global energy crisis is a distinct policy decision—protect households from escalating fuel prices.
Even as Brent crude prices have surged significantly amid the ongoing West Asia crisis, domestic petrol and diesel prices have largely remained stable. According to SBI Research, oil marketing firms are currently facing losses of approximately ₹24 per litre on petrol and ₹30 per litre on diesel.
In response, the government has lowered excise duty by ₹10 per litre on both fuels. Although this action has offered relief to consumers, it carries considerable fiscal implications.
SBI Research anticipates that the Centre could encounter a net revenue loss of around ₹1.1 lakh crore in FY27 due to the excise cut, even after factoring in the additional revenues from increased export duties on diesel and aviation turbine fuel.
Interestingly, states could benefit in this scenario. Elevated crude prices may boost VAT collections on petroleum products, potentially generating an extra ₹25,000 crore in FY27, the report suggests—hinting at the possibility of states stepping in to share the burden through VAT reductions.
Energy crisis reveals structural weaknesses
The policy interventions occur against the backdrop of a deepening global energy crisis.
CRISIL Ratings describes the ongoing West Asia conflict as having triggered the “largest energy shock on record,” significantly impacting oil, gas, and logistics supply chains.
The Strait of Hormuz—through which almost 20% of global oil supply is transported—has faced restricted movement, compounded by disruptions to key energy infrastructure in the region. LNG supply issues, particularly following damage to facilities in Qatar, have further exacerbated the situation.
These impacts are evident in price changes. In March, Brent crude prices rose sharply, while international gas prices and freight costs skyrocketed, with tanker rates increasing by as much as 75% month-on-month.
For India, the exposure is substantial. The country imports nearly 88–90% of its crude oil, a significant portion sourced from West Asia. CRISIL notes that this region accounts for 40–50% of India’s oil imports, 38% of remittance inflows, and a notable share of trade and investment ties.
Macro trade-offs start to emerge
This combination of heightened energy prices and policy interventions is creating complex macroeconomic trade-offs.
CRISIL outlines two possible outcomes. In its base case, India’s GDP growth is projected at 7.1%, with the current account deficit at 1.5% of GDP. However, in a more adverse scenario—where the conflict continues and energy disruptions worsen—growth might slow to 6.8%, while the current account deficit could expand to 2%.
Inflation could also rise, driven by secondary effects from energy costs feeding into transportation and core prices, despite controlled retail fuel prices.
SBI Research adds another layer to this trade-off: the fiscal burden of consumer protection. As the Centre absorbs revenue losses and oil companies struggle with under-recoveries, the pressure on public finances and corporate balance sheets could escalate if high crude prices persist.
Domestic resilience remains for now
Yet, despite these challenges, India’s macroeconomic fundamentals continue to provide a cushion.
PL Asset Management notes that GDP growth remains strong, with FY26 projections at 7.6%, fueled by robust consumption and manufacturing activity. Inflation remains within the Reserve Bank of India’s acceptable range, granting policymakers some flexibility.
Notably, domestic liquidity has become a crucial stabilizer. Even as foreign investors withdrew ₹6,640 crore, domestic institutional investors injected ₹38,423 crore into equities, buoyed by consistent SIP flows.
This has allowed Indian markets to maintain relatively stable conditions compared to their global counterparts, even in the face of rising volatility.
However, risks are converging
The main concern is not any single risk, but the convergence of multiple pressures.
PL Asset Management warns that increasing crude prices, a weakening rupee, slower global economic growth, and tighter financial conditions could collectively undermine the macroeconomic advantages supporting India’s growth narrative.
Currency pressures are already mounting. In CRISIL’s adverse scenario, the rupee is projected at weaker levels, influenced by a widening current account deficit and fluctuating capital flows.
Simultaneously, global monetary conditions remain stringent. Sustained high energy prices are expected to keep inflation elevated worldwide, diminishing the possibility of aggressive interest rate cuts and prolonging higher borrowing costs.
This dynamic could adversely affect corporate earnings, investment cycles, and market valuations.
Supply chains, exports, and remittances at risk
Beyond the energy sector, the ripple effects are extending throughout the broader economy.
CRISIL highlights that disruptions in shipping routes—forcing vessels to take longer paths—are raising logistics expenses and transit times by several weeks. This is affecting exports, particularly to West Asia, which comprises about 13% of India’s outbound shipments.
Remittances, a critical support for India’s external balance, may also come under strain if economic conditions in Gulf countries deteriorate. This region contributes nearly 38% of India’s remittance inflows.
Input costs are rising across industries—from fertilizers and chemicals to petrochemicals—heightening concerns about margins and output, especially in energy-intensive sectors.
Policy interventions provide temporary relief, not immunity
The government has acted quickly to lessen the impact—diverting gas supplies to priority sectors, increasing LPG allocations, and supporting exporters through targeted initiatives.
There are also longer-term strategies in motion, such as diversifying crude sources, expanding renewable energy capabilities, and strengthening fertilizer security.
However, these actions are primarily focused on managing immediate repercussions and gradually enhancing resilience. They do not completely shield the economy from prolonged external shocks.
A delicate balancing act lies ahead
The emerging landscape calls for careful management.
On one side, India is leveraging its domestic strengths—consumption, liquidity, and policy support—to navigate a challenging global atmosphere. Conversely, it increasingly depends on fiscal and administrative measures to mitigate external shocks.
As SBI Research’s estimates indicate, this protective cushioning comes at a definitive cost. CRISIL’s scenarios reveal that the macro risks are tangible and escalating. Moreover, PL Asset Management cautions that the convergence of these risks could swiftly alter the narrative.
For the present, India remains relatively insulated. However, the margin for error is shrinking—and the viability of this balancing act will hinge on the duration of the global turmoil.
