The global geopolitical order has been under severe strain since the start of the Middle East crisis involving Israel, Iran, and the US. While a fragile two-week ceasefire has been announced, the crisis has already left deep imprints on energy markets, shipping routes, supply chains, financial markets, and overall economic sentiment. A durable resolution remains uncertain, and the macroeconomic implications for India — direct and indirect — are far from trivial. As a base case, we assume that crude oil (Brent) price would average around USD 85 pb in FY27, up from USD 70 pb in FY26.

We fine-tune our FY27 GDP growth forecast to 6.6% from 6.6-6.8% earlier, while upping our CPI inflation forecast to 4.5% from 4.0% earlier. Having said, the looming likelihood of a back-loaded disruption in the south-west monsoon season will be on watch. This can have implications for both growth and inflation in H2 FY27. We project India's current account deficit to widen to 1.8% of GDP in FY27, with a BoP deficit of USD 30 bn — a third consecutive year of BoP deficit, an experience last seen in the early 1980s in the aftermath of the 1978-80 oil price shock.

Together with continued foreign investment outflow, this reflects the challenges posed by the Impossible Trinity dynamic. The policymakers will need to tread cautiously — balance long-term policy credibility with short-term targeted interventions to preserve financial stability and ensure energy security.Amidst divergence in outlook on growth and inflation, we expect monetary policy to remain on pause, with repo rate maintained at 5.25% through FY27. The 10Y g-sec yield is expected to move higher towards 7.25% with INR likely to weaken towards 96.5 by Mar-27. Needless to say, there are several moving parts to the FY27 economic outlook. Geopolitical risks, clarity on tariffs, weather related developments are  exogeneous factors that will determine the outcome, along with the domestic policy response.