The world in 2026 is navigating several crises simultaneously - and India is not watching from the sidelines. A reshaping of global trade architecture driven by US tariff policy, a shooting war in the Middle East that has disrupted energy corridors and sent oil prices surging, slowing growth across major G20 economies, and volatile capital flows are all feeding into India's macroeconomic environment in real time.
The Indian rupee hit a record low of ₹93.98 against the dollar in March 2026 as oil prices surged following the US-Iran conflict escalation. Foreign portfolio investors pulled roughly $5.7 billion from Indian equities in the first half of March 2026 alone. India VIX - the market's fear gauge - surged from 13.70 to 27.17 in under a month as the conflict intensified. Prime Minister Modi publicly urged citizens to reduce foreign travel and gold purchases to conserve foreign exchange as import bills ballooned.
And yet, India is simultaneously being described by the IMF, Deloitte, and S&P Global as one of the most resilient major economies in the world. GDP growth is projected at 6.5–6.6% for FY2026. A landmark India-US trade deal signed in February 2026 restored export competitiveness overnight. The China-plus-one manufacturing shift is accelerating in India's favour. The country's domestically driven economy - exports account for only 21% of GDP compared to over 60% for some Asian peers - provides a structural buffer that most comparable nations do not have.
The picture is neither doom nor triumph. It is a complex, fast-moving set of risks and opportunities that every Indian business needs to understand clearly. This article breaks down each global crisis, what it means for the Indian economy, and what it means for businesses operating in India.
Crisis 1: The US tariff war and the India-US trade deal
What happened
The trade friction between the United States and India reached its most acute point in the first half of 2025. In April 2025, the US imposed reciprocal tariffs of 27% on most Indian goods under President Trump's "Liberation Day" tariff framework - targeting India's goods trade surplus of $35 billion with the US and India's higher average tariffs on US imports (12% versus the US's 3% on Indian goods).
By August 2025, Washington added a further punitive 25% surcharge specifically tied to India's continued purchases of Russian crude oil, bringing the effective tariff on Indian exports to the US to approximately 50%. For Indian exporters - particularly in textiles, engineering goods, auto components, and MSMEs - the impact was immediate and severe. Margins collapsed. Orders slowed. Many firms sold at discounts simply to maintain US market presence.
The February 2026 deal - a structural shift
After months of negotiations under the COMPACT (Catalyzing Opportunities for Military Partnership, Accelerated Commerce and Technology) framework and the Mission 500 initiative - aimed at growing bilateral trade to $500 billion by 2030 - the breakthrough came on February 2, 2026, when President Trump announced a bilateral trade deal with India that:
• Reduced the effective US tariff on Indian goods from approximately 50% to 18%
• Eliminated the punitive 25% surcharge tied to Russian oil purchases (effective February 7, 2026)
• Committed India to halt or significantly reduce Russian crude oil imports
• Committed India to zero tariffs on specified US goods and to boost imports of major US products, including defence and energy
At 18%, India now faces a more favourable tariff rate than regional competitors - Vietnam (20%), Bangladesh (20%), and China (30–35%). This single move restored price competitiveness for Indian exporters almost overnight and reinforced India's positioning as the preferred manufacturing destination in the China-plus-one shift.
Between January and November 2025, despite the tariff friction, US imports from India had already risen 19.2% year-on-year to $95.4 billion - a figure that demonstrates the structural demand for Indian goods even under tariff pressure, and one that suggests the deal's full impact on export volumes is yet to be realised.
What this means for Indian businesses
Export-oriented sectors - textiles, pharmaceuticals, auto ancillaries, electronics - now have meaningfully better US market access. The trade uncertainty that had suppressed earnings visibility and investment decisions through much of 2025 has eased. Mid and small-cap companies with US export exposure are particularly positioned to benefit as orders recover.
The energy commitment is a structural change. India's agreement to reduce Russian oil purchases and increase US energy imports changes India's import sourcing mix, with implications for energy cost structures, refining economics, and currency dynamics. Indian refiners and energy-intensive industries will need to monitor how the energy shift is implemented and what it means for their input cost base.
A formal Bilateral Trade Agreement is still being negotiated. The February 2026 deal is an interim arrangement - a precursor to a full-fledged BTA expected to be signed later in 2026. Businesses with significant US trade exposure should track the BTA negotiations closely, as the final agreement could further reshape sectoral tariffs, non-tariff barriers, and intellectual property protections.
Crisis 2: The Middle East conflict and the energy shock
What happened
The conflict in the Middle East - centred on the US-Iran standoff and the escalating Israel-Iran war - has created the most significant energy supply disruption since the 2022 Ukraine-Russia war. The Strait of Hormuz, through which approximately 20 million barrels of crude oil and oil products moved daily in 2025 (along with roughly one-fifth of global LNG trade), became the focal point of supply disruption risk.
The Indian rupee fell to a record low of ₹93.98 against the dollar in March 2026 as crude prices surged. Over the course of 2025 and into 2026, the rupee depreciated approximately 10% from ₹85 in January 2025. The Indian rupee's depreciation compounded inflationary pressures and raised the country's cost of borrowing, creating a difficult macroeconomic environment for the RBI to navigate.
India's vulnerability is structural. The country is heavily dependent on imported crude and gas. A large share of India's crude flows - directly or indirectly - through Gulf supply corridors. When conflict disrupts shipping, production, or insurance in this belt, India does not face a distant energy market problem. It faces an immediate domestic inflation and fiscal problem.
The transmission channels into India
Energy costs and inflation. Higher crude prices transmit directly into transport costs, manufacturing input costs, fertiliser and food production costs. India's relatively low inflation of 1.8% average through FY2025-26 has been a key support for consumption and the RBI's easing cycle - any sustained oil price surge threatens to interrupt that support and delay further rate cuts.
The rupee: India's currency is structurally sensitive to oil price movements because higher oil prices increase the country's import bill, widening the current account deficit and increasing demand for US dollars. CareEdge Ratings projects India's current account deficit to widen to 1.1% of GDP in FY26 due to trade disruptions. Higher energy costs are expected to significantly widen India's trade deficit, and the rupee has come under strain trading near all-time lows against the dollar as a result.
Capital outflows: Geopolitical escalation triggers global risk-off sentiment. Foreign portfolio investors move to safe-haven assets - primarily the US dollar - at India's expense. FPIs sold approximately $5.7 billion of Indian equities in the first half of March 2026 as the Middle East conflict intensified and global risk aversion rose.
Shipping costs and supply chains: Middle East conflict disrupts Red Sea and Gulf shipping routes, pushing freight costs higher and extending delivery timelines for Indian exporters and importers alike. Industries dependent on imported raw materials face cost increases and supply uncertainty simultaneously.
What this means for Indian businesses
Energy-intensive industries - cement, steel, fertilisers, chemicals, aviation, logistics - face direct margin pressure. Input cost increases may not be fully passable to customers, compressing profitability. Airlines, in particular, face a double pressure: rising aviation turbine fuel costs and currency depreciation increasing the dollar-denominated cost of aircraft leases and maintenance.
Import-dependent businesses face rupee risk. Any business paying for imports in foreign currency - whether raw materials, capital equipment, software, or services - faces higher costs when the rupee weakens. Treasury and hedging strategies that were adequate at ₹85 per dollar need to be reviewed at ₹87–93 per dollar.
Exporters face a mixed picture. A weaker rupee makes Indian exports cheaper for foreign buyers, partially offsetting global demand slowdown. IT services exporters and goods exporters with dollar revenues benefit from rupee depreciation in terms of rupee-denominated revenues. However, this benefit is partially offset by higher import costs for firms with significant imported inputs.
The energy policy shift creates both risk and opportunity. India's agreement to reduce Russian oil purchases - which had provided discounted crude since 2022 - changes the cost base for Indian refiners. However, it also opens a path to deeper energy cooperation with the US, including LNG supply agreements and potential technology transfers in the energy sector.
Crisis 3: Global growth slowdown and weakening external demand
The global backdrop
The global growth outlook has deteriorated significantly since 2024. The OECD cut its global growth forecast for 2025 to 3.1% (from 3.3%), and lowered 2026 to 3.0%, citing trade tensions as the primary driver. Fitch's forecast is even more pessimistic, cutting global growth to 1.7% for 2025 and 1.5% for 2026. Goldman Sachs, which had projected 2.7% global growth in November 2024, was forced to revise materially downward as the scale of US tariff actions became clear.
For the first time in years, multiple G20 economies are slowing in tandem. The US faces growth of just 1% in 2025, according to CareEdge projections, down from 2.8% in 2024. China's growth is projected to ease from 5% to 4.4%. Europe faces stagnation risks. Emerging market economies that depend on exports to these destinations - India included - face weakening external demand.
India's structural resilience - and its limits
India's GDP is projected to grow at 6.5–6.6% in FY2026, according to Crisil and the IMF - making it the fastest-growing major economy in the world for the year. India focused squarely on its biggest strength, domestic demand, to keep growth buoyant as inflation levels stayed low on average through the fiscal year. Despite global headwinds such as higher US tariffs and volatile capital outflows, India posted impressive growth in the first half of the fiscal, powered by robust private consumption and investment, aided by easing inflation and favourable rural conditions.
This domestic demand resilience is real and significant. At approximately 21% of GDP, India's export dependence is low compared to most comparable economies. Domestic consumption - supported by a growing middle class, improving rural income, RBI rate cuts, and government spending - provides a growth base that does not directly depend on global trade conditions.
But the limits of this resilience are also real. India's IT services sector - among the country's most important export earners - is exposed to US corporate spending decisions. When US companies tighten budgets in response to tariff uncertainty or recession risk, IT outsourcing contracts, discretionary spending, and new project approvals slow. A global recession would severely affect India, particularly its IT exports, which form a major part of export earnings. A sustained slowdown in US corporate spending would transmit into revenue pressure for Indian IT firms and the large employment base they support.
What this means for Indian businesses
B2B businesses selling to global clients need contingency planning. US and European corporate clients facing margin pressure or growth uncertainty will scrutinise outsourcing costs, renegotiate contracts, and delay new engagements. Indian service exporters should expect longer sales cycles, more competitive bidding, and greater client focus on value demonstration.
Domestic-focused businesses are relatively insulated. Indian companies whose revenues come primarily from the domestic market - FMCG, healthcare, retail, real estate, financial services, education, and infrastructure - are better protected from external demand shocks. The government's infrastructure push and RBI's easing cycle continue to support domestic activity.
Sectors benefiting from supply chain diversification should accelerate. The China-plus-one shift - driven by US companies actively reducing China exposure - is creating meaningful manufacturing and supply chain opportunities in India, particularly in electronics, semiconductors, pharmaceuticals, specialty chemicals, and textiles. China continues to face tariffs exceeding 30%, reinforcing India's role as a preferred China-plus-one manufacturing base. Companies that have positioned themselves to capture this shift are seeing accelerated orders and new customer relationships.
Crisis 4: Currency volatility and capital flow uncertainty
The rupee's movement in 2025–2026 has been driven by a combination of the three crises above - oil prices, trade tensions, and global risk sentiment - rather than any single factor. The result is a currency that has depreciated approximately 10% from its January 2025 levels, creating a complex environment for businesses, investors, and policymakers.
The RBI has been managing a difficult balancing act: using foreign exchange reserves to prevent excessive rupee volatility, while maintaining space to cut interest rates to support domestic growth. The Fed's decision to retain only two rate cuts for 2026 - keeping US interest rates elevated at 4.25–4.50% - limits how aggressively the RBI can ease without risking further capital outflows.
What this means for Indian businesses
Currency hedging is no longer optional for businesses with foreign currency exposures. Whether a business is importing raw materials, paying for SaaS subscriptions, servicing foreign debt, or remitting dividends to foreign investors, rupee volatility at this scale has a material P&L impact. Treasury functions that previously managed currency risk as a secondary concern need to treat it as a primary one.
Foreign currency borrowing costs have risen. Indian companies with ECB (External Commercial Borrowings) or dollar-denominated debt face higher repayment costs in rupee terms. Refinancing decisions and debt structure reviews should factor in currency risk explicitly.
For foreign investors in India, rupee depreciation partially offsets equity returns. FPI flows into Indian equities are sensitive not just to market performance but to currency performance - a 10% rupee depreciation erodes 10% of dollar-denominated returns. The RBI's reserve management and the trajectory of the rupee will remain important factors in FPI sentiment through 2026.
The opportunity in the crisis: why India is still better placed than most
Amid the pressure, several structural factors continue to position India as one of the most attractive economies and investment destinations in the current global environment.
India's domestic demand story is intact. Private consumption growth remains strong, rural incomes are improving, inflation is well-managed by historical standards, and the RBI has room for further easing. These fundamentals support business volumes for domestic-oriented companies regardless of global headwinds.
The China-plus-one shift is accelerating. Global supply chain diversification away from China - driven by US companies, but also by European and Japanese firms - is creating a structural, multi-year opportunity for Indian manufacturers, particularly in electronics assembly, pharmaceuticals, specialty chemicals, and industrial components. The February 2026 India-US trade deal has reinforced India's competitiveness in this race.
India's relative position in the tariff landscape is improving. At 18% US tariff, India is better positioned than China (30–35%), Vietnam (20%), and Bangladesh (20%) - giving Indian exporters a competitive edge that did not exist twelve months ago.
Government policy is actively supporting resilience. India's fiscal response to global headwinds has included infrastructure spending, production-linked incentive schemes, monetary easing, and active trade negotiation. Deloitte's January 2026 India economic outlook characterised 2026 as a year of "resilience, reforms, and recalibrations" - a deliberate government strategy to use domestic policy levers to cushion external shocks.
India remains the world's fastest-growing major economy. At 6.5–6.6% projected GDP growth for FY2026, India's growth differential over all major economies remains significant. For businesses making long-term investment decisions - whether Indian or foreign - that differential is a fundamental driver of confidence.
What Indian businesses should do right now
The correct response to global crisis is not paralysis, and it is not false optimism. It is clear-eyed risk assessment followed by deliberate action.
Review your foreign currency exposure: If your business has significant import costs, foreign debt, or dollar-denominated expenses, assess your current hedging position and whether it is adequate for rupee volatility in the ₹87–95 range.
Stress-test your supply chain: Identify which inputs come from Middle East-linked supply routes or from China. Understand where disruptions would affect your operations and build contingency sourcing relationships.
Reassess your US market strategy: For businesses with US exposure, the trade deal has changed the landscape. Export businesses that scaled back in 2025 due to tariff pressure should revisit their US market plans under the new 18% tariff environment.
Identify your China-plus-one positioning: Whether you manufacture directly or supply to manufacturers, understand how global supply chain diversification applies to your industry and what steps you would need to take to capture new business from companies reducing China dependency.
Build scenario plans, not single forecast:. The Middle East conflict remains active and unresolved. US-China trade tensions remain elevated. The RBI's rate path depends on oil prices and inflation, not just domestic factors. Businesses that plan against a range of scenarios - rather than a single central case - will respond faster when conditions shift.
Focus on domestic demand fundamentals: For businesses primarily serving the Indian market, the external noise is less directly relevant than domestic consumption trends, government spending, and RBI policy. Staying focused on domestic execution while monitoring external risks for their domestic transmission effects is the right prioritisation.
Conclusion
Rising global crises are creating a more complex, more volatile, and in some ways more consequential external environment for India than at any point since the COVID-19 pandemic. The Middle East energy shock, the US tariff architecture, slowing global growth, and rupee volatility are all real pressures - not theoretical risks - that are already affecting Indian businesses, investors, and consumers.
But the story is not one-sided. India's domestic demand resilience, its improving trade position following the February 2026 US deal, its structural advantage in the China-plus-one shift, and its status as the world's fastest-growing major economy are equally real. The businesses and investors that will do best in this environment are those that understand both sides clearly - managing the risks while positioning to capture the opportunities that global disruption is creating in India's favour.
If your business needs strategic guidance on how global risks are affecting your sector, supply chain, or financial exposures, speak with our advisory team for a current assessment.
Frequently asked questions
1. How are global crises affecting the Indian economy in 2026?
India faces three major global headwinds in 2026: the US tariff war and its aftermath, the Middle East conflict disrupting oil supplies and weakening the rupee, and slowing global demand affecting exports. Despite these pressures, India's GDP is projected to grow at 6.5–6.6% in FY2026, supported by strong domestic demand, easing inflation, and the February 2026 India-US trade deal.
2. What was the India-US trade deal of February 2026?
On February 2, 2026, President Trump announced a bilateral deal reducing the effective US tariff on Indian goods from approximately 50% to 18%. The deal eliminated a punitive 25% surcharge tied to India's Russian oil purchases and committed India to halt/significantly reduce Russian crude imports. The deal restored export competitiveness for Indian businesses and is a precursor to a full Bilateral Trade Agreement expected later in 2026.
3. How does the Middle East conflict affect India?
India is a major crude oil and LNG importer, much of which transits through Gulf supply routes including the Strait of Hormuz. The US-Iran conflict has pushed oil prices higher, weakened the rupee to record lows near ₹93–94 per dollar, triggered foreign investor outflows, and raised shipping costs - all of which feed into India's inflation, fiscal deficit, and business costs.
4. Why did the Indian rupee fall to record lows in 2026?
The rupee weakened due to the combination of higher crude oil prices (increasing India's import bill), global risk-off sentiment triggered by the Middle East conflict (driving capital outflows), and the elevated US interest rate environment limiting RBI's ability to ease aggressively. The rupee fell approximately 10% from ₹85 in January 2025 to record lows near ₹93–94 in March 2026.
5. Is India heading into a recession in 2026?
No. India's GDP growth is projected at 6.5–6.6% for FY2026 by the IMF and Crisil, making it the world's fastest-growing major economy. India's domestically driven economy, with exports accounting for only 21% of GDP, provides a significant structural buffer against the global slowdown. The risks are real but a recession is not the base case for India.
6. What is the China-plus-one opportunity for Indian businesses?
As US and global companies actively reduce their manufacturing dependence on China - driven by tariffs, geopolitical risk, and supply chain resilience strategies - India is a primary beneficiary. At 18% US tariff (versus 30–35% for China), Indian manufacturers now have a competitive cost advantage in the US market. Key sectors benefiting include electronics, pharmaceuticals, specialty chemicals, textiles, and industrial components.
7. How should Indian businesses respond to global uncertainty in 2026?
Businesses should review foreign currency hedging, stress-test supply chains for Middle East and China dependence, reassess US market strategies under the new trade deal, identify China-plus-one positioning opportunities, and build multi-scenario plans rather than single-point forecasts. Domestic-focused businesses should prioritise domestic execution while monitoring external risks for their domestic transmission effects.
8. How do US tariffs affect Indian IT companies?
Indian IT companies are less directly affected by goods tariffs but are exposed to US corporate spending decisions. When US companies tighten budgets in response to tariff uncertainty or recession risk, IT outsourcing contracts and discretionary spending slow. A sustained US economic slowdown would create revenue pressure for India's IT services sector.
9. What is India's current account deficit outlook for FY2026?
CareEdge Ratings projects India's current account deficit to widen to 1.1% of GDP in FY26, driven by higher oil import costs from the Middle East conflict, slower goods exports due to global trade tensions, and weaker global demand. The February 2026 India-US trade deal and a moderation in oil prices could limit the widening if conditions stabilise.
10. Is the India-US trade relationship changing structurally?
Yes. The Mission 500 initiative - targeting $500 billion in bilateral trade by 2030 - and the COMPACT framework signal a structural deepening of the trade and defence relationship between India and the US. The February 2026 interim deal is the first step in a full Bilateral Trade Agreement. India is being positioned by both governments as a primary US ally and a critical counterweight to China in the Indo-Pacific.
11. Which Indian sectors are most vulnerable to global crises?
The most exposed sectors include aviation (fuel costs, rupee debt), oil-intensive manufacturing (input cost pressure), IT services (US corporate spending slowdown), textiles and MSMEs (export margin pressure), and import-dependent industries (rupee depreciation). Sectors with domestic demand focus - healthcare, FMCG, financial services, infrastructure - are relatively more insulated.
12. Which Indian sectors benefit from the current global environment?
Sectors positioned to benefit include export manufacturers with US competitiveness (textiles, pharmaceuticals, auto ancillaries), companies capturing the China-plus-one shift (electronics, specialty chemicals, industrial components), IT firms with dollar revenues benefiting from rupee depreciation, and domestic infrastructure and consumption sectors supported by government spending and RBI easing.