The Indian economy is showing remarkable strength even as energy costs remain high due to the ongoing war in West Asia. Government officials have expressed clear confidence that the first quarter of 2026 will deliver solid economic growth despite these challenging conditions.
This optimism comes from several strong indicators showing that India’s economy has built enough resilience to handle external shocks without losing momentum. The story behind this confidence is one of domestic strength, robust demand, and sectors that keep growing regardless of what happens with global oil prices.
Energy prices have stayed elevated because the West Asia conflict has disrupted supply chains and pushed crude oil costs higher. When oil prices rise, it normally creates problems for countries like India that import most of their oil. Higher energy costs can slow down businesses, increase prices for consumers, and put pressure on the government’s budget.
Yet India’s economy has managed to perform well even under these pressures. The full fiscal year 2025-26 saw GDP growth reach 7.7 percent, which was higher than the previous year’s 7.1 percent, and this strong performance included a particularly robust January-March quarter that helped lift the entire year’s numbers.
What makes this growth story interesting is that it comes from inside India rather than from external factors. The services sector has been expanding healthily, manufacturing continues to grow, and construction activity remains strong. These sectors don’t depend heavily on energy prices in the same way that oil-intensive industries do.
When people visit malls, when car sales jump by 29 percent in a single month, when cement demand shows high single-digit growth, these are signs that ordinary Indians are spending and building. This kind of domestic demand creates a buffer against external problems like rising oil prices.
Credit growth is improving, which means banks are lending more to businesses and individuals. When credit flows freely, companies can invest in new projects, people can buy homes or cars, and the economy keeps moving forward. At the same time, the government has taken a less restrictive approach to fiscal policy, which supports growth.
The combination of better credit availability and supportive government spending creates conditions where the economy can expand even when facing headwinds from energy costs.
Neelkanth Mishra, who serves on the Prime Minister’s Economic Advisory Council and is now an Executive Director at the World Bank, explained that India is better positioned than many other energy-importing countries to handle elevated oil prices. He noted that India’s economy grew 7.1 percent in FY25 even though fiscal and monetary policies were tightened.
This means that without those tightening measures, growth would have been even higher. His analysis suggests the economy was actually expanding at more than 8 percent annually until February-March 2026, based on improving credit growth and a less restrictive fiscal stance.
India’s refining sector provides another layer of protection. While higher crude prices do increase costs for oil marketing companies, those same companies earn stronger profits from their refining operations. This refining margin partially offsets the impact of expensive crude oil.
With crude trading around $94-95 per barrel and diesel refining margins easing, India doesn’t need to raise fuel prices further. The $8 per liter cushion is sufficient since oil prices have eased somewhat due to inventory releases from China and the US.
Even if oil reaches $100 per barrel, Mishra estimates the drag on growth would be around 2 percent, which wouldn’t derail the overall economy. He compared this to an aircraft facing headwinds: the plane still flies forward even when wind pushes against it.
India’s refining surplus, strong domestic demand, and easing fiscal and monetary pressures should keep growth in the 7.5-8 percent range even if crude prices stay elevated.
The government’s confidence also comes from seeing how the economy performed during previous periods of uncertainty. When the economy entered this episode of global turbulence, it had better fundamentals than in similar past episodes.
The RBI Governor noted that India remains confident about withstanding shocks with minimum pain, showing that the economic foundation is strong enough to handle challenges.
What matters most for ordinary people is that jobs continue, businesses grow, and prices stay manageable. The strong mall footfalls, rising car sales, and healthy cement demand all point to an economy where people have confidence in their future.
When consumers feel secure, they spend, and that spending drives further growth. This cycle of confidence and consumption is what keeps the economy moving forward even when energy prices rise.
The bigger challenge for policymakers is managing the narrative until data proves this resilience. People need to see the numbers that confirm the economy is strong, and until those numbers are widely available, there’s work to be done in explaining why growth remains solid despite the energy price concerns.
Public confidence in the economy matters just as much as the actual economic performance, and building that confidence requires clear communication about what’s really happening.
