India Braces for Stagflation Risk as Global Tensions Mount

Escalating geopolitical friction and a looming supply crisis centered on Iran threaten to push India toward stagflation. While the nation concluded the 2026 fiscal year with surprising economic momentum, Nuvama Institutional Equities warns that the coming year may force a difficult adjustment as rising input costs erode real income.

The brokerage firm anticipates a significant deceleration in economic activity, projecting growth to slide toward 6% to 6.5% for fiscal year 2027. This follows a strong performance in the final quarter of 2026, where GDP expanded by 7.8%. Analysts point to the volatility in global oil prices as a primary catalyst for this shift, noting that persistent supply chain disruptions, when paired with the potential for a weak monsoon, create a volatile environment for domestic output.

Despite these headwinds, the report identifies internal mechanisms that could provide a buffer against a total economic slowdown. Sustained credit growth and proactive liquidity management remain key variables that may insulate the economy from the worst effects of external shocks. Even so, the combination of stubborn inflation and cooling growth remains a central concern for policymakers navigating the year ahead.