Blitz Bureau
NEW DELHI: The latest Crisil Financial Conditions Index (FCI) paints a sobering picture of an economy under siege. After a brief “respite” in February, the “fog of war” from the West Asia crisis has descended, triggering a sharp tightening of India’s financial markets.
The great retreat
In March, the FCI plummeted to -1.5 , a level not seen since the peak of the pandemic recovery in 2022. This wasn’t just a minor dip; it was a breach of the “comfort band,” signalling that financial conditions had moved from supportive to restrictive. The primary driver was a massive exodus of foreign portfolio investors (FPIs).
Spooked by the escalating conflict, FPIs pulled out a staggering $13.6 billion in March alone — the largest monthly outflow since Covid-19. While this slowed to $7.6 billion in April, the sentiment remains fragile as investors pivot to “safe-haven” assets.
The “crude” reality
At the heart of this looming crisis is the volatile energy market. Brent crude prices, which sat at a manageable $71 in February, rocketed to $121 per barrel by the end of March, averaging above $120 throughout April. For a country that imports the lion’s share of its energy, this is a direct hit to the solar plexus.
Crisil warns that even if the kinetic conflict settles, the “lingering effects” on energy infrastructure will keep prices elevated, likely averaging $90–$95 for the remainder of the fiscal year. This energy shock ripples through every sector:
The rupee: The currency crossed the psychological barrier of 95 per dollar in April, driven by the widening trade deficit.
Bond yields: The 10-year G-sec yield surged to 7.02 per cent , reflecting growing fiscal concerns as the Government balances subsidies with market stability.
The looming “polycrisis”
The narrative is shifting from a temporary shock to a “polycrisis.” Crisil’s forecasts have been revised to reflect this grim reality. GDP growth is projected to slow to 6.6 per cent (down from 7.6 per cent last year) as high input costs and supply chain disruptions take their toll. Meanwhile, retail inflation is expected to spike to 5.1 per cent, a sharp jump from the previous year’s 2 per cent.
Beyond the numbers, the human element is at risk. With 40 per cent of India’s remittances originating from West Asia, any prolonged instability threatens the primary source of foreign exchange for millions of Indian households.
Rising freight costs and curtailed supply chains are further squeezing manufacturers, who now face the double-edged sword of more expensive raw materials and a weakening global demand.
A test of resilience
While the Reserve Bank of India (RBI) has stepped in to mitigate the rupee’s freefall and maintain systemic liquidity, the room for manoeuvre is shrinking. The crisis isn’t just about oil; it’s about a fundamental tightening of the gears that keep the Indian economy moving.
As we move further into 2026, the “comfort zone” of early 2026 feels like a distant memory. The challenge now is whether India’s domestic resilience — driven by strong bank credit growth and robust tax collections — can weather a storm that shows no signs of clearing.