India redraws economic strategy as Middle East war sparks oil shock and inflation fears

India is shifting its economic strategy in response to the Middle East conflict, which has disrupted energy supplies, spiked crude oil prices, and heightened currency volatility. According to an S&P Global report, policymakers are moving beyond short-term crisis management to build long-term resilience through self-sufficiency, diversification, and stronger domestic manufacturing. The country’s business activity slowed in March 2026, with the HSBC India Composite PMI dropping to 57.0 from 58.9 in February, its weakest reading since November 2022. Rising costs and volatile market conditions are straining companies, while inflation risks escalating to 5.6% if crude prices remain above $100 per barrel, per S&P Global estimates. To mitigate risks, India’s government has introduced fuel and fertilizer subsidies, strategic energy management, and an Economic Stabilization Fund. The Reserve Bank of India has also intervened in currency markets to stabilize the rupee, though these measures may strain fiscal consolidation efforts after the deficit was reduced from pandemic-era highs. The crisis is accelerating India’s push for self-reliance, with a focus on critical sectors like renewable energy, semiconductors, and defense manufacturing. The government plans to diversify energy partnerships beyond traditional suppliers, strengthening ties with the US, Australia, Mozambique, and Nigeria. Analysts note that India’s long-standing policy of strategic autonomy could prove advantageous in a fragmented global economy. However, balancing economic support with fiscal discipline will be key as geopolitical tensions reshape trade, energy, and technology flows.