New Delhi, Oct 6: The economic fallout from the Iran conflict could hit Indian producers before consumers, with higher crude oil prices already feeding into wholesale inflation and raising input costs for the industrial sector, senior economist from World Bank Ran Li told ANI on Tuesday.

Li said oil imports and prices would be the primary channel through which the conflict could affect the Indian economy. The impact is already becoming visible in the Wholesale Price Index (WPI), which has risen since June, and directly affects producers.

“The main channel from the Iran conflict will be through the import of oil and then through the price,” ANI reported Li as saying. She added that the increase in WPI could have a more immediate impact on industrial producers.

The pressure could subsequently be passed on to consumers as businesses seek to recover higher input costs. This could weigh on consumer spending, although the extent of the impact would depend on the strength of domestic demand and other supporting factors. Li said the impact of the conflict could become more pronounced during the second half of the fiscal year, citing August inflation data as an early indication of the developing pressure.

The World Bank has raised its forecast for India's economic growth in FY27 to 7.1 per cent. However, the senior economist identified the Iran conflict and a rainfall deficit linked to El Nino as key risks to the outlook. The rainfall deficit currently stands at around 12-15 per cent compared with the historical average, according to Li. The shortfall could weigh on agricultural output and, in turn, rural consumption.

Despite these risks, India's domestic economy has remained more resilient than expected. Li pointed to the performance of two-wheelers and four-wheelers as indicators of relatively firm rural and urban consumption, respectively. Investment indicators have also performed better than anticipated.

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She said strong domestic demand, timely government responses and economic buffers built over the past decade could partially offset the impact of elevated oil prices on consumption and investment.

However, with geopolitical risks continuing to weigh on energy markets, the immediate burden is expected to remain concentrated on producers through higher input costs, while a broader pass-through to consumers could emerge later. (With ANI inputs)