West Asia crisis may not be short lived; high energy prices to push inflation to 5% in FY27: EY

EY today said the West Asia crisis may last beyond expectations of a “short lived” conflict pushing inflation to 5% this fiscal even as the agency maintains that India will remain the fastest growing major economy despite global slowdown risks.

“Current indications suggest that the West Asian crisis may last well beyond expectations of a short-lived conflict. Even after it is resolved, considerable time would be required for the global crude supply situation to normalize. As such, India’s growth may be lower than 6.5% and inflation somewhat higher than RBI’s baseline projections. There is a likelihood of the ICB price exceeding US$95 per barrel on average in FY27,” EY said in the Monthly economic review for April released today.

“Even so, India’s growth in FY27 is expected to be more than double that of global growth under an adverse scenario. In this context, the IMF recommends careful calibration of policy responses since much room for fiscal maneuver or monetary policy actions does not exist,” it said.

EY said inflation pressures are rising globally and in India, driven mainly by elevated energy prices. “India’s CPI inflation is projected to rise to 4.5%–5.0% in FY27, before moderating toward the RBI’s 4% target over the medium term,” it said.

On growth, the report said India’s growth resilience is supported by strong domestic demand, stable consumption, trade diversification, and structural reforms, even as manufacturing and services face cost pressures.

However, monetary flexibility is limited, it added. “With inflationary risks rising, the RBI is maintaining a neutral stance and may face pressure to tighten rates later in FY27 rather than provide stimulus. Recent policy and economic developments including GST 2.0 reforms, the FY27 Union Budget, updated national accounts, changes in subsidy requirements following the West Asian crisis, and heightened global uncertainty have contributed to a revised fiscal context both with reference to the projections of Finance Commission 16 and the FY27 Union Budget,” it said