Middle East conflict raises near-term risks for India but long-term growth outlook remains strong: RBI MPC member

The ongoing conflict in the Middle East could pose short-term challenges for the Indian economy by pushing up oil prices and disrupting trade flows, though the country’s long-term growth trajectory is unlikely to be significantly affected, according to Nagesh Kumar, an external member of the Reserve Bank of India’s Monetary Policy Committee (MPC).

In an emailed interview with PTI, Kumar said the immediate economic risks stem from higher energy prices, potential export disruptions and possible effects on remittances from Indians working in the region.

"The breakout of the Middle East conflict poses some immediate-term challenges for the Indian economy by raising oil prices, disrupting exports destined to the region and the potential loss of remittances, besides threatening security of the Indian diaspora in the region," Kumar said.




He noted that the conflict has escalated following US-Israel strikes and that oil prices could remain firm in the near term.

"In the immediate short run, the conflict is escalating with US-Israel strikes and oil prices are likely to harden," he said.

"Hopefully, the crisis will be resolved soon, given the high stakes that the world has in the region."

Kumar said diversification of crude oil sourcing could help cushion the impact of the crisis on India’s energy supplies.

"The opening up of Venezuelan oil supplies for India is also likely to be helpful, as it diversifies the options," he said.

He added that if the Middle East tensions ease and sanctions on Iran are lifted, India could benefit from access to cheaper oil.

Despite the geopolitical risks, Kumar said inflation remains under control and does not currently pose a threat to macroeconomic stability.

"Headline CPI stood at 1.3 per cent in December 2025 and is projected to be around 2.5 per cent in FY2026, even under the new data series," he said.

"The inflation outlook is not showing any concerns of overheating."

Kumar said the combination of stable inflation and improving growth prospects could allow India to remain in the so-called "Goldilocks" zone-- a phase of steady growth with manageable inflation.

"The upshot of these trends, namely brightening economic growth outlook amid a continued benign inflationary trend, provides an opportunity for India to stay in the 'goldilocks' zone for longer, except for the challenges posed by the conflicts in the immediate-term," he said.

He added that India has the potential to move from around 7 per cent growth to nearly 8 per cent, supported by expansion in manufacturing alongside the continued dynamism of the services sector.

"Going forward, fiscal and monetary policies should work in a coordinated manner to support the transition of the economy to a higher GDP growth trajectory," Kumar said.

"It is this higher growth trajectory underpinned by a robust manufacturing sector that will be needed for the creation of adequate decent job opportunities and durable prosperity."