The Strait of Hormuz has become news all over the world time and again, and one thing that keeps returning to New Delhi's policy circles is the fear that the crude bill will finally put a dent in India's growth narrative. The latest answer from the International Monetary Fund, in its new World Economic Outlook update released this week, is a surprisingly consistent one. Growth has been trimmed, not gutted. The Fund trimmed India's forecast for the current fiscal year by just ten basis points to 6.4 percent and raised the expectation for the next fiscal year to 6.7 percent. That's not what an economy that is stumbling under an energy shock looks like. It's the profile of one who takes a hit and keeps on going.

This is a context where it is hugely important to consider context. This is occurring amid a decade's most disruptive oil market event. The Iranian military's moves in the Strait of Hormuz following a February clash between Iran and the US and Israel blocked a route through which about a fifth of the planet's seaborne crude and LNG is transported. The IMF put the price for Brent crude at around 62 dollars a barrel in January, and they've now incorporated that higher figure into their forecasts, as today's renewed fighting brought the price up to 78 dollars a barrel in one session as Washington cancelled Iran's waiver on crude exports and targeted dozens of military sites. This is no background noise, as more than four-fifths of the crude is imported from abroad for this country. It is a direct tax on the households, industry and exchequer.

But the figures emerging from the domestic economy are unusually robust. The collection of Goods and Services Tax in June reached almost 1.95 lakh crore rupees, a 13.9 per cent increase from the collections in the same period of last year and the highest growth rate in more than a year. Meanwhile, import-linked GST rose by nearly 35 percent, suggesting that there is no restriction on trade and consumption even as prices of energy goods have gone up. Net collections (after refunds) grew 11 percent from the previous year. But it was foreign portfolio investors too, who would have been expected to run away from an oil-shocked, geopolitically exposed market, who were net buyers of Indian equities till early July, in addition to regular domestic institutional buys. The Nifty has been bouncing off its 200-day moving average for several days now, and it is regarded as a real change of sentiment by traders and not a dead cat bounce.

This does not imply that the picture is clear. India's biggest growth driver service activity has chilled slightly at the edges, with the HSBC services PMI falling to a 17-month low in June while export orders remained sound and input cost inflation also decreased to a five-month low. Manufacturing also dipped, to 54.2 from 55 a month ago. The rupee has been trending downwards, nearing 95.5 to the dollar, on a general strength in the dollar as well as on the energy cost pressure on the current account. The July forecast by the India Meteorological Department for below-normal rains in the kharif (summer) season, which is likely to be some 23 percent less than last year, is another less talked-about risk, which is a weak monsoon would limit the rural incomes as urban demand is being tested by rising prices of fuel. Economists at rating agencies have been honest about the idea that any respite from lower oil is temporary: “The damage to supply in the Gulf will take years to heal and replenishment of inventories by oil-bullish economies could provide a floor price for the remainder of the year of around 85-90 dollars,” they have written.

The reason the arithmetic is logical is not the sheer size of the rate of growth in India, but the make-up of this growth. The economic recovery is not being driven by exports or capital goods; it's coming from private consumption and the service sector, protecting the economy from a shock that is hitting heavily overseas on trade and energy-intensive industries. The Middle East and Central Asia (MECA) Fund projects the neighbourhood will expand by only 0.7 percent this year after the extended shutdown of Hormuz, while Iran's economy will shrink by over 5 percent and the economies of some exporters, including those of Gulf nations such as Qatar and Kuwait, will also fall sharply. China, which is more vulnerable because of its manufacturing and export sector, has been lowered to 4.6 percent. The eurozone, which is still recovering from the Russian energy shock in 2022, is trading at less than 1 percent, while prices in Britain are little higher. In this context, India's 6.4 percent isn't merely capable of withstanding the slowdown, but also appears poised for one of the best growth profiles among large economies in 2026, only ahead of a few smaller, tech and export-heavy economies like Vietnam.

The deeper one, however, and the one which Delhi's policy makers will be privately stressing, is that India is no longer as vulnerable to an oil shock as it was a decade or two years ago. The combination of a diversified services base, a deepened formalisation, as indicated in the buoyancy of taxes, of a banking system that is less stressed than in the previous cycles and of a policy of currency management that puts emphasis on calibrated intervention instead of outright defence, have modified the propagation of shocks within the economy. If pump prices continue to increase, the subsidy bill will increase, fiscal maths will get more difficult and the Reserve Bank's rate-cutting spree may have to come to a halt. The structural growth narrative, however, which is based on tens of billions of consumers' spending on services versus commodities, is proving more difficult to come undone than the oil price charts. Now the real challenge is to see if the ceasefire agreement that collapsed this week can become a reality that withholds the resumption of hostilities, while winter energy demand puts yet another strain on an already strained global market.