The ongoing conflict in West Asia is posing fresh challenges to the global economy as disruptions to energy supply chains threaten to weigh on growth prospects, according to a market review report by HDFC Mutual Fund. 

The report noted that while geopolitical tensions are increasing uncertainty, economic activity in several major economies continues to show resilience. 

New GDP series shows strong growth momentum 

The government recently released a revamped GDP series with 2022–23 as the new base year, replacing the earlier 2011–12 base year. The revised series incorporates significant methodological changes aimed at making GDP measurement more robust and reflective of structural changes in the economy over the past decade. 

According to the new data, India’s real GDP growth in the third quarter of FY26 stood at a strong 7.8% year-on-year, compared with 8.4% growth in the previous quarter. Full-year FY26 growth is now estimated at 7.6%, revised upward from 7.4% under the earlier series. The estimate implies a growth rate of about 7.6% in the fourth quarter as well. 

The growth in the December quarter was largely driven by strong private consumption and investment demand. On the supply side, both manufacturing and services sectors posted robust expansion. 

High-frequency indicators signal steady momentum 

High-frequency indicators for February suggest that economic activity remains resilient. The impact of tax cuts on consumption demand is particularly visible in vehicle registrations, which have recorded strong growth for the fifth consecutive month. 

Power demand has also remained strong, while Goods and Services Tax collections have picked up and continued to remain robust. Looking ahead, domestic demand is expected to remain healthy, supported by tax cuts, the lagged impact of monetary easing, and key trade agreements, particularly with the US and the European Union. 

In addition, prospects of a good rabi harvest and relatively low inflation are likely to support rural demand. However, the report cautioned that recent geopolitical developments and supply chain disruptions could hamper growth in the near term. 

Govt finances remain stable 

The report noted that government finances remain in a comfortable position. Gross tax revenue growth remained healthy in January, led by a pick-up in corporate tax collections, with year-to-date revenue growth now exceeding budgeted levels. 

At the same time, the government has maintained expenditure discipline. Year-to-date spending growth remains below budgeted levels, while capital expenditure growth has moderated after strong front-loading in the first half of the fiscal year. Revenue expenditure rose only 1.3% year-on-year during the first ten months of FY26. 

Current account remains manageable 

India’s current account deficit (CAD) in the third quarter of FY26 stood at 1.3% of GDP, lower than 1.5% recorded in the previous quarter, largely due to a moderation in the trade deficit. However, the capital account registered a deficit of about $10 billion in Q3FY26, compared with a surplus of $2 billion in the previous quarter. Despite this, the deficit remained lower than the corresponding period last year. 

Going forward, the report warned that the current account could face headwinds from the ongoing conflict in West Asia. However, strong growth in services exports is expected to keep the deficit within manageable levels. 

Inflation and trade trends 

The government has also revised the base year for the Consumer Price Index (CPI) series to 2023–24 from the earlier 2011–12 base year to better reflect changing consumption patterns. Under the revised series, the weight of food items has been reduced while that of core components has increased. According to the new series, CPI inflation rose to 2.8% year-on-year in January, compared with 1.3% in December under the earlier series, largely driven by higher food inflation. 

Meanwhile, India’s trade deficit widened in January due to higher imports of gold and silver. The report cautioned that the trade deficit could remain under pressure if the West Asia conflict continues for an extended period. However, strong growth in services exports is expected to help keep the current account deficit within manageable levels. 

Crude oil prices have been rising in recent months amid escalating tensions in West Asia. Oil prices increased 2.5% year-on-year in February after registering a 16% rise in January. Industrial metal prices, however, remain subdued due to concerns over weak global demand, particularly from China.