Economists say the West Asia crisis has dented the India story. How do you see the medium to long-term economic implications of the conflict?
The Indian economy has been strong and robust due to strong fundamentals. From a short-term perspective, the impact of the war is being felt through energy markets, especially oil. Softening bond yields, no impact on trade deficit and falling oil prices since March show the impact of the conflict is likely to remain contained in the near term. Of course, all this analysis is contingent on how prolonged the disruption actually is.
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The conflict has highlighted how exposed India is to commodity shocks, especially oil? How can we address this?
The current conflict underscores the importance of systematic risk-management approach. First, India needs to identify critical economic chokepoints-across energy, food, fertilisers, metals and critical minerals-and actively mitigate both volume and price risks. This requires significantly expanding physical buffers, including strategic petroleum reserves and stockpiles of key commodities, moving beyond the traditional focus on forex and food stocks.
Second, excessive import dependence must be reduced through diversification of sourcing and trade routes, supported by more effective use of FTAs.Third, over the medium term, the most durable solution lies in reducing structural dependence on fossil fuels by accelerating the transition towards renewables, energy storage and electrification, thereby insulating the economy from recurring external commodity shocks.
What measures are on cards to mitigate the economic impact of the crisis?
On the financial side, the Reserve Bank of India has taken measures to ensure currency stability, ease liquidity pressures and extend export credit timelines, while targeted support is being provided to exporters and affected sectors. On the external front, efforts are focused on diversification of energy sources, securing long-term fuel supplies and maintaining adequate reserves, alongside leveraging FTAs to diversify trade markets.
Domestically, inflation management measures and discouraging panic buying are helping maintain stability. These are complemented by sustained public capital expenditure, availability of fiscal space for targeted interventions and strengthened emergency response systems.
How do you assess inflation risks given food price volatility and global commodity swings?
The trajectory of inflation will largely hinge on the movement in energy prices, particularly crude oil. At present, inflation remains contained at around 3%, though a prolonged conflict could push it up to the 4-4.5% range. Overall, while the extent of impact will depend on the duration of the conflict, India’s strong macroeconomic fundamentals place it in a relatively resilient position to absorb such shocks.
The meteorological department has forecast a below-normal monsoon this year… What measures is the government contemplating to offset impact?
The impact of El Nino on Indian agriculture depends on its severity, spatial and temporal distribution of rainfall. Due to comfortable water reservoir levels and improved irrigation now compared to earlier decades, the overall impact on agriculture is likely to remain muted.
However, the situation remains evolving and warrants close monitoring, particularly to assess any adverse effects on crop yields and input costs faced by farmers.
Adequate buffer stocks of food grains are being maintained, which can be strategically released to stabilise prices and ensure availability.
Crop insurance schemes such as the Pradhan Mantri Fasal Bima Yojana are likely to play an important cushioning role, enabling compensation for yield losses and protecting farm incomes.
These measures, alongside continued monitoring and targeted support where required, help mitigate the adverse effects of rainfall variability.
Is the current 6-7% growth trajectory sustainable without a broad-based revival of private investment?
In the near term, maintaining 6-7% growth is feasible, supported by public and private capex, domestic consumption and accommodative monetary conditions. However, if India aims to move to a higher growth path of 8% real (and 11-12% nominal) required for the Viksit Bharat 2047, a fresh and broad-based private investment cycle will be essential to drive capacity expansion, productivity gains and employment generation.