West Asia Conflict May Slow GDP Growth & Stoke Inflation, Warns SBI Chairman

New Delhi, May 29 (KNN) State Bank of India's (SBI) Chairman Challa Sreenivasulu Setty has cautioned that while India's macroeconomic foundations remain sound, the spillover effects of the Gulf conflict could weigh on growth and reignite inflationary pressures in the year ahead.

In his message to shareholders, Setty said, "The financial year gone by unfolded against a backdrop of heightened geopolitical tensions, evolving trade dynamics, and persistent global economic uncertainty," TOI reported, citing the SBI's annual report.

"The global gross domestic product (GDP) growth is projected to slow down, largely on account of the West Asia conflict," he added.

Setty described these risks as not merely cyclical but structural, pointing to elevated public debt, volatile energy prices, and increasing geopolitical fragmentation as persistent threats to long-term global growth.

He noted, "The recent challenges posed by West Asia conflict are proactively being accommodated through regulatory dispensation by the RBI and fiscal measures... however, the economic fallout of the conflict may lead to lower GDP growth and higher inflation in FY 2027," as quoted by TOI.

India's Resilience, and Its Limits

The SBI chairman acknowledged that India has fared better than most peers amid global turbulence, backed by "strong domestic demand, sustained public investment, improving private consumption, and policy continuity." 

He highlighted, "India's macroeconomic fundamentals remain robust, with inflation likely to remain within the RBI's comfort band and fiscal policy maintaining a prudent balance between growth and consolidation."

However, he cautioned that external shocks could test this equilibrium, and that managing volatility in energy markets and capital flows will be critical as geopolitical risks persist. 

Setty emphasised that managing volatility in energy markets and capital flows will be critical amid persistent geopolitical risks, with policymakers and banks needing to remain agile in responding to sudden shifts in inflation and growth dynamics.

(KNN Bureau)