India’s overall growth outlook has held broadly steady despite disruptions linked to the U.S.-Israeli war with Iran, but economists polled say the picture hides mounting stress in the informal economy that official statistics may not yet reflect.
Analysts point to scant real-time metrics on key variables such as fuel costs, employment, household demand and the health of small businesses, making the scale of the shock hard to measure. Yet anecdotal reports suggest early strain across the shadow economy, which has in past calculations contributed almost half of India’s official gross domestic product readings.
Economic activity concentrated in cities - where roughly 60% of GDP is generated - shows early signs of strain. Many restaurants and hotels in urban areas have been forced to scale back operating hours, pare menus or turn to alternative fuels such as firewood as liquefied petroleum gas supplies are disrupted by the conflict in the Middle East.
While India has introduced a new GDP series that increases data inputs in an effort to better capture informal activity, economists say those changes fall short of providing a clear, timely picture of what is happening on the ground.
Surveyed economists expect India’s gross domestic product to expand 6.7% in the current fiscal year, according to an April 20-27 Reuters poll of 54 economists, a projection that matched the March forecast. That pace would mark a modest slowdown from the 7.0% growth forecast for the year ending March 31, 2026. Forecasts for fiscal 2026-27 ranged from 5.9% to 7.5%. Growth was expected to edge up to 6.8% in 2027-28.
Some economists emphasised that the informal segment is particularly vulnerable to shocks. "(The informal segment is) the worst hit and its ability to absorb shocks is very low. So we will see a ripple effect...on jobs and demand: all of that is going to play out if this problem persists beyond the near term," said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.
Yes Bank Chief Economist Indranil Pan noted that damage to the informal sector will not necessarily be reflected strongly in headline GDP numbers. "That’s also the reason why we have not really changed our GDP much at this point in time," he added.
Inflation is seen averaging 4.5% this fiscal year, the survey found, which sits inside the Reserve Bank of India’s 2% to 6% target band but is more than twice last year’s pace. Respondents also expect the RBI to keep interest rates on hold through the end of 2027, according to the poll.
Economists said the government has tried to limit price effects by slashing fuel duties. Still, a drawn-out conflict in the Middle East would squeeze public finances and could force a reallocation of spending away from capital expenditure - a key growth driver amid weak private investment.
"If push comes to shove, there could be a situation where a material diversion of funds from capex to subsidies happens. Price pressures are imminent and will in the medium term affect...the fiscal front," said Aditya Vyas, chief economist at STCI Primary Dealer Limited.
In sum, the poll suggests measured optimism at the aggregate level but flags several areas of vulnerability. The most immediate concern is the informal sector and urban services that rely on affordable fuel and steady demand. If the disruptions to fuel supplies and related price pressures persist, the consequences could spread to jobs, consumption and fiscal policy choices.
Data and measurement caveats
- Economists highlight a lack of timely indicators for fuel costs, employment, and small-business health that limits real-time assessment of the informal sector.
- Although the statistical system has expanded inputs to capture informal activity better, experts say further steps are required for an accurate, current read on the shadow economy.