War in West Asia sent global markets into a tailspin. Crude oil prices jumped, and the rupee came under pressure. Given the region’s importance as a trading hub and home to several of India’s key trading partners, the turmoil was expected to weigh heavily on the Indian economy. The closure of the Strait of Hormuz, a critical trade route, heightened concerns over potential disruptions to supplies of crude oil, fertilisers, and petrochemicals.
With the conflict now appearing to move towards a resolution, it is time to assess the impact that more than 100 days of war between Iran and the US-Israel alliance has had on the Indian economy.
ROBUST EXPORT GROWTH
Contrary to expectations, India’s exports remained resilient through the period, posting double-digit growth in both April and May. Merchandise exports touched a record high of $45.2 billion in May, supported by strong demand for petroleum products, engineering goods, chemicals and electronic products, government data shows.
Much of the strength came from emerging export markets. According to a MoneyControl analysis, robust growth in shipments to Singapore, Tanzania, Sri Lanka, South Africa, and Italy drove this. While exports to Singapore rose nearly 69 per cent in May, those to Sri Lanka and South Africa grew by more than 100 per cent. Malaysia and South Korea were among the other markets that posted strong growth in May.
RECORD VEHICLE SALES
Despite multiple hikes in petrol and diesel prices, May witnessed robust growth in sales of passenger vehicles, two-wheelers and three-wheelers. According to the Society of Indian Automobile Manufacturers, a national body of automobile and engine manufacturers, “Passenger vehicles, three-wheelers and two-wheelers recorded their highest-ever sales for May 2026, with high double-digit growth across all segments.” SIAM data show that passenger vehicle sales grew by 27 per cent year-on-year, while two-wheeler sales increased by nearly 15 per cent.
INFLATION A DAMPENER
While exports jumped and vehicle sales surged in May, rising inflation remains a concern. Driven by higher food prices, retail inflation edged up to 3.93 per cent in May, with rural inflation running even higher at 4.25 per cent. More worrying, the latest data show that wholesale inflation accelerated sharply to 9.68 per cent. Much of the increase was driven by a nearly 30 per cent rise in wholesale prices of fuel and power, a direct fallout of the war in West Asia.
There are also risks on the food inflation front. With rainfall lagging expectations so far and the India Meteorological Department forecasting a below-normal monsoon due to the onset of El Nino, upward pressure on food prices is likely to persist in the coming months.
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