India’s West Asia exposure may test macro stability if conflict drags on, says JPMorgan 

India’s economy could come under pressure if the ongoing conflict in the Middle East persists and keeps oil prices elevated, according to a JPMorgan report released on March 6. 

The report said India’s links with the region are deep and span energy imports, remittances and trade. Around 58% of India’s oil imports and 57% of gas imports come from the Middle East, while the GCC and West Asia account for about 14% of India’s exports. The region is also a major source of remittances for India, with about 38% of inflows estimated to originate there. 

JPMorgan said the biggest risk to India’s external position would come through oil. It expects India to post a current account deficit of 0.9% of GDP in FY26 under its base case, but warned that a prolonged conflict would widen the gap through higher oil prices, weaker remittances and softer exports. 

A $10 per barrel increase in crude prices would widen India’s current account deficit by about 0.5% of GDP on an annual static basis, the report said. At $85 per barrel, the deficit could widen by around 0.7% of GDP. 

The report also flagged inflation and growth risks if elevated crude prices persist. Oil marketing companies may initially absorb the shock and keep pump prices unchanged, but a prolonged rise could eventually force retail fuel price hikes. At current price trends, with oil at $85 a barrel, consumer inflation could rise mechanically by 40-50 basis points, with possible second-order effects as well. 

On growth, JPMorgan estimates that a 20% rise in oil prices to about $85 per barrel could shave 30 basis points off GDP growth. It cited RBI estimates showing that a 10% rise in oil prices can reduce growth by 15 basis points. 

Separately, January industrial production came in weaker than expected at 4.8% year-on-year, below both JPMorgan and consensus estimates of 6%. The miss was driven largely by a sharper-than-expected decline in manufacturing. 

On a seasonally adjusted sequential basis, industrial production fell 1.4% month-on-month in January. Even so, the bank said momentum remains strong when viewed over a three-month period, supported by firm readings in November and December, accelerating credit growth and better corporate earnings. 

Within the January industrial output data, infrastructure goods continued to post firm gains, while capital goods softened after strong increases in the previous two months. Consumer demand, however, appeared less broad-based, with both durable and non-durable goods output declining. 

Looking ahead, JPMorgan expects February CPI inflation to come in at 3% year-on-year, driven by higher food prices and fading base effects. Core-core inflation excluding precious metals is seen staying contained at 0.2% month-on-month on a seasonally adjusted basis.