West Asia war poses no recession risk for India, but economic slowdown is on the cards: Madan Sabnavis

With no end in sight to the West Asia war, concerns are rising over inflation, interest rates and GDP growth in India. As part of the Money Guru series, Bank of Baroda chief economist Madan Sabnavis breaks down the potential impact on the economy, household finances and job markets, and assesses whether recession risks are real or overstated.At a theoretical level, inflation could rise, but much depends on how long the war lasts, how high crude oil prices go and how much of this increase is passed on to consumers. So far, the government reduced excise duty on petrol and diesel, absorbing much of the crude price increase.

The key question is how long this can continue.If crude oil prices return to $80-90 per barrel, there may not be a major issue. But if prices stay above $100 for a couple of months, the government may eventually raise fuel prices. This could increase the Wholesale Price Index by around 2-3% and the Consumer Price Index (CPI) by about 0.5%.Indirect effects could be more significant.

LPG availability, rising fertiliser costs and higher gas prices could push up inflation across petroleum products. Overall, CPI inflation could rise by 0.5-1% if the war continues for 3-6 months and costs are passed on to consumers.Households may be underestimating the persistence of higher inflation. Instead of staying around 2.5-3%, inflation could rise to 4.5-5%.

Perceived inflation is typically 2-3 percentage points higher, meaning households could feel inflation closer to 7%.This affects budgeting decisions like how much to spend versus save. With rising prices across food, consumer durables and FMCG goods, consumption will increase, leaving less room for savings. This trade-off between consumption and savings could have