Will an oil shock and trade turmoil get in the way of India’s 2047 aim? Let’s acquire resilience against setbacks

Despite the turmoil, the global economy has proven surprisingly resilient. According to the International Monetary Fund’s (IMF) April 2026 World Economic Outlook, global growth remained solid in 2025 despite these headwinds.

Three factors cushioned the blow: a rollback of reciprocal tariffs and a new wave of bilateral trade deals; accommodative monetary conditions as major central banks eased policy; and a sustained surge in AI-related capital expenditure on semiconductors, servers and data-centre infrastructure.

The outbreak of the West Asia conflict in early 2026 has introduced a new and sharper complication: an adverse commodity supply shock. Energy prices, which were already elevated, have spiked further, roughly 37% above their 2024 fourth-quarter baseline by early 2026, with precious metals also rising sharply as a safe-haven play.

Depending on how long the conflict persists, the global growth outlook for 2026 could slip from 3.1% to as low as 2.0% in a severe scenario, while headline inflation could spike to nearly 6% worldwide.

For India, the near-term effects span three direct macro-economic dimensions: fiscal, inflationary and external.

The Union budget for 2026-27 targets a fiscal deficit of 4.3% of GDP, a credible consolidation path. But that arithmetic assumed an Indian crude basket price of around $69 per barrel of oil.

With Brent crude running at $125 or more, every line of the budget’s energy-subsidy allocation will be tested: fertilizer subsidies rise as liquefied natural gas (LNG) and urea spot prices surge, liquefied petroleum gas (LPG) support costs rise and the dividends of oil marketing companies (OMCs) shrink.

Scenario analysis conducted by Isaac Centre for Public Policy (ICPP) suggests that if the disruption lasts only through June 2026, the Centre’s fiscal deficit widens to 4.49% of GDP, which seems manageable.

If it stretches to September, we reach 4.69%. A disruption through December 2026 would push the gap to 4.99%, adding roughly ₹2.6 trillion to the budgeted figure, nearly 0.69 percentage points of GDP. This is a meaningful but manageable deviation from India’s consolidation path, one that calls for careful prioritization across subsidy support and capital expenditure.

On inflation, the Reserve Bank of India’s (RBI) pre-war baseline assumed retail inflation at 4.5% for 2026-27 with Brent at $70 per barrel. Its post-war reference scenario, with partial pass-through to retail prices, nudges that to 4.6% at $85 Brent and 5.0% at $95.

ICPP modelling, assuming that the Indian basket averages $120 per barrel through the year and 50% pass-through to pump prices, puts inflation close to RBI’s upper tolerance band at 5.48%.

The government faces a classic trilemma: protect consumers by absorbing costs on the fiscal side, protect the fisc by passing costs along to consumers and accepting higher inflation, or ration demand through administrative means. Each path involves trade-offs.

India’s pre-war current account deficit was a benign 1.1% of GDP. ICPP scenario analysis projects that this could widen to 1.67% if the disruption ends by June, 2.27% by September, and 3.12% by December 2026—above sustainable levels estimated by Rangarajan and Mishra (in 2013).

Remittances, historically a crucial buffer for India, also warrant monitoring: IMF research suggests that a sharp rise in regional uncertainty could reduce flows by around 22% for every unit of increase in the foreign uncertainty index, underscoring the value of India’s diplomatic engagement in the Gulf.

All of this plays out against a longer-run backdrop that makes energy resilience a strategic imperative, not a policy option. India’s GDP per capita stands at roughly $2,700 today. Reaching high-income status by 2047, the stated Viksit Bharat goal, requires nominal GDP per capita in US dollar terms to grow at around 8% annually for the next two decades. Achieving that requires, inter alia, building buffers against energy disruptions.

Three structural priorities stand out.

India’s strategic petroleum reserves (SPR) cover only 10 days of net imports, a fraction of Japan’s 200 days or South Korea’s 208. Even including commercial inventories, our total of 74 days is short of the International Energy Agency’s 90-day benchmark. Urgent SPR expansion is among the cheapest insurance policies available.

By government data, India’s ethanol blending programme, which reached 20% in 2025 five years ahead of schedule, has reduced imports of crude by 23.9 million tonnes (about 176 million barrels), and saved ₹1.4 trillion in forex over the past decade or so. Fuel blending has trade-offs of its own, but on balance it is a net positive for energy security and rural income.

India’s electric vehicle (EV) transition and renewable electricity build-out, with EVs now at 8% of new vehicle sales and renewables at 25% of electricity generation, are directionally correct and need to be accelerated.

India enters this period of heightened global uncertainty from a position of relative macro- economic strength, equipped with the policy tools to manage what lies ahead. Policymakers will need to navigate a careful path that could optimally protect growth, contain inflation and maintain fiscal credibility.

The short-run choices are indeed hard. But the medium-run lesson is amply clear: a country with Viksit Bharat ambitions has every reason to build structural resilience against commodity shocks.

Expanding strategic reserves, deepening India’s ethanol programme, accelerating the EV transition and scaling renewable energy are investments in growth, stability and security.

The Isaac Centre for Public Policy team contributed to this article.

These are the author’s personal views.

The author is dean of Ashoka School of Economics, director and head of Ashoka Isaac Center for Public Policy, and professor of economics at Ashoka University.