Virendra Pandit
New Delhi: India’s macroeconomic outlook faces rising risks amid escalating US-Iran tensions and a sustained spike in crude oil price could put the country’s economy back by three to four years, according to global equity research and brokerage firm Bernstein.
Its latest report cautions that the current geopolitical shock, if it persists, could expose structural vulnerabilities in the Indian economy, and noted that “a prolonged period of elevated crude and tighter external financing conditions could play out for India’s macro,” the media reported on Saturday.
Drawing historical parallels, Bernstein warned of a potential “GFC moment,” recalling that “India’s economic growth slipped from ~10 percent to 5 percent, inflation spiked to 10 percent, and rupee depreciated 30 percent.”
The Global Financial Crisis (GFC) of 2007–2009 was marked by a worldwide financial collapse, caused by the US housing bubble bursting, which resulted in massive bank failures, a credit freeze, and a severe recession.
The Bernstein report underlined that crude oil remains a key pressure point, that “the crude price threatens to push inflation back above the tolerance range,” and flags risks to growth and external balances.
In a worst-case scenario involving a prolonged conflict through 2026, Bernstein said the repercussions could be severe, including double-digit inflation, economic growth in 2-3 percent range, Indian rupee beyond 110 per USD, and nifty going well below 20,000.
Even under more moderate assumptions, the outlook remains challenging. The report expects “realistic chances of inflation breaching 6 percent this summer,” which could delay monetary easing, with rate cuts to get pushed for two quarters at the least, and GDP growth to taper.
On external accounts, elevated crude prices are likely to widen imbalances. Bernstein noted that “elevated crude and trade almost go hand in hand,” potentially leading to a surge in the merchandise trade deficit and pressure on the current account.
Currency pressures are also building, with the report warning that “it is only a matter of time before 97-98 levels are breached” if hostilities persist.
Despite the possibility of near-term de-escalation, Bernstein emphasized that structural damage may already be underway, stating “a structural change has happened already,” with crude unlikely to return to earlier low levels this year.
Summing up the broader impact, the report warned that sustained geopolitical stress could materially hit growth, with “the potential to set back the growth by 3-4 years,” adding that even in less severe scenarios, the environment could “shelve a full percentage point off the annual GDP growth.”
Bernstein maintained a cautious stance on markets, advising that “waiting out for clear signals, in such times, is often the best strategy,” amid elevated uncertainty driven by geopolitics rather than fundamentals.
Comments are closed.