India's growth looks stable but informal sector hit hard by US-Iran war: Reuters poll of economists

A Reuters poll of economists cautioned that even though the country’s growth outlook looks stable, India’s informal economy is significantly hit by the war in West Asia. The poll was taken by 54 economists between April 20 and April 27.

The economists underlined that it was difficult to assess the pressures on the informal sectors due to limited real-time data on jobs, demand, and direct impact on micro and small businesses. It is important to note here that the shadow economy has previously accounted for roughly half of the official GDP readings.

Impact of War

In Indian cities, which are primary drivers of the economy and generate nearly 60% of GDP, the shortage of Liquified Petroleum Gas (LPG) cylinders has led to the shutting down of many restaurants and hotels, while several have cut down menus and few are sustaining on alternate cooking fuel.

Although the new GDP series has increased data inputs in an attempt to capture a more granular picture of India’s informal economy, economists claim more needs to be done.

"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— which is going to play out if this problem persists beyond the near term," ⁠Kotak Mahindra Bank Chief ‌Economist Upasna Bhardwaj told Reuters.

In the long term, economists anticipated, the West Asia war would start affecting people’s finances despite the government trying to cushion the economy from price pressures. This could force a shift in spending away from capital expenditure, a main growth driver amid weak private investment.

Inflation was seen averaging 4.5% this fiscal year, within the RBI's 2-6% ​target range but more than ​double last year’s pace.

"If push comes to ⁠shove, ​there could be a situation where a material diversion of funds from ​capex to subsidies happens,” Aditya Vyas, chief economist at STCI Primary Dealer Ltd, told Reuters.

India’s Growth Outlook:

According to the survey, India's GDP is expected to grow 6.7% this fiscal year. Although it is in the growth range of 5.9% to 7.5% forecast for the 2026-27 fiscal year, it is a slight reduction from the 7.0% expected for the year ending March 31, 2026. Growth was expected to edge up to 6.8% in 2027-28.

Yes Bank Chief Economist Indranil Pan told Reuters that the disruption to the informal sector would not be captured clearly by the country's GDP reading."That’s also the reason why we have not really changed our GDP much at this point in time," he added.

It has been two months since the US-Israel strikes on Iran led to a widespread war in West Asia. Its economic toll is now spreading beyond the region, with emerging and developing markets including India facing rising inflation, growing fiscal strains and ​trade disruptions.