Ministry of Finance (India) Says Prolonged West Asia Tensions Could Impact Rupee and Inflation

If the crisis in West Asia persists for a long time, the rupee may lose value. Prices of oil and fertilizer may also increase, leading to higher inflation. A report by the Finance Ministry, which was released on Friday, said that despite being a major crude oil importer, India can manage to reduce the impact of higher crude prices in the global market due to its foreign exchange reserves, low current account deficit, and controlled inflation.

However, if the crisis persists, the rupee’s value, the current account deficit, and inflation may deteriorate. These sectors may also face pressure due to higher LNG and oil-based fertilizer/petrochemical prices. The Finance Ministry stated in its February Economic Review Report that capital flows to safe havens will put additional pressure on the currency.

The Finance Ministry stated in the report that increased tensions following the attacks on Iran have disrupted shipping through the Strait of Hormuz. Despite this disruption, the external sector remains stable despite uncertainty in global trade. Furthermore, active trade diplomacy, including trade agreements with the US and the European Union, is expected to diversify export destinations and enhance external strength in the medium term.

The report states that despite global uncertainty and the West Asian crisis, the Indian economy remains on track for a robust growth rate during the current fiscal year 2025-26. Real GDP growth is expected to be 7.6 percent during this period, while real gross value added growth is projected to be 7.7 percent. Economic activity remained broad-based and strong in January 2026, supported by high-frequency indicators such as logistics activity, expansion in PMIs and robust demand.