The growing economic dangers for India are tied to the potential for problems with money and business in the Gulf region, according to the new SBI Funds Management report. The problems could spread far beyond just the price of energy, and put strain on money sent home to India, the rupee, the current account (the difference between a country’s savings and spending with the rest of the world), and the government’re financial plans if the conflict goes on.
Scope of the risk and main channels
There are several ways the conflict could affect India’s dealings with the rest of the world. The most obvious way is higher oil prices, but money sent home from workers abroad, import and export balances, and how much the government needs to spend on subsidies could all cause significant risk. These things all affect each other, and could make the impact on India’s growth and stability even worse.
SBI Funds points out that about 38% of all the money sent to India from people working in other countries comes from the Middle East, and about half of that comes from the United Arab Emirates. If there are continuing problems with jobs or getting money from the Gulf region, a substantial amount less money could come into India.
The report also connects oil price changes to how much India spends more on imports than it earns from exports. It estimates that for every $10 increase in the price of a barrel of oil, India’s current account deficit will grow by $15 billion. This means that if oil stays expensive for a long time, the deficit could get much larger.
Remittances, trade balances and the current account deficit
Money sent home supports people’s income and India’s reserves of foreign money, so a slowdown in this would have a wide impact on the economy. Less money coming in from workers abroad could mean people spend less and the current account comes under more pressure, particularly in states where a lot of people have family working in other countries.
The difference between what India buys and sells to other countries could worsen because it will cost more to import oil. If oil stays around $100 a barrel for a long period, the report says the current account deficit could grow by as much as $70 billion. This would be a significant change for an economy that normally keeps this deficit below t2% of its total economic output.
If not much money is invested in India from outside, this imbalance could get even worse. The report notes that in recent times very little long-term foreign investment has come into India, which has already made India’s balance of payments weaker despite improvements in the current account.
Currency pressures and capital flow volatility
The rupee could lose value again if investments from outside the country don’t become stable. SBI Funds now expects the rupee to fall in value by 4 to 15% in 2026 (they previously predicted a 2 to 3% fall). They believe the rupee will go from around 93 to 96 against the US dollar over the next six months if money from foreign portfolio investors doesn’t pick up.
A weaker rupee would make imported oil and fertilizer more expensive, increasing inflation and possibly forcing the government to change its monetary policy. Unstable money coming in and going out of the country also makes the markets more stressed, and could reduce the government’s ability to react to problems if conditions in the rest of the world get worse at the same time.
Fiscal impact: fertiliser subsidies and government outgo
The report says that costs for things businesses need are going up, and this could lead to the government spending more on subsidies, particularly for fertilizer. Prices for fertilizer around the world have gone up, and urea is almost 50% more expensive than it was in December 2025. Increased costs for fertilizer and gas could mean the government needs to provide an estimated Rs 300 billion or more in subsidies.
If the government suddenly has to spend a lot more on subsidies, it will put a strain on its finances, reduce how much flexibility it has, and possibly mean it has to change its planned spending. This would make making decisions about the economy more complicated at a time when the country’s finances and the currency markets might already be struggling.
Policy implications and market outlook
Those in charge of the economy have a choice: they can build up India’s reserves of foreign money, encourage stable investment from abroad, and get ready to give specific financial help if money sent home from workers abroad decreases. They could encourage more long-term foreign investment, manage how much the government spends on fuel subsidies, and support ways for people to continue sending money home without too much disruption.
The market will probably watch oil prices, money coming into the country as investment, and trends in money being sent home closely. If oil prices stay high and not much money comes in from portfolio investments and foreign direct investment, it will make a wider financial crisis more likely. Acting on the situation quickly and communicating clearly can help reduce the further effects on inflation and economic growth.
The SBI Funds report stresses that the conflict in Western Asia could go much further than just affecting energy markets, and could shape how vulnerable India is to outside forces, how the rupee performs, and how the government’s finances develop if the problems continue. Everyone involved should keep an eye on what’s happening and have plans in place to protect individuals, businesses and the government’s financial situation.
