New Delhi: Chief Economic Advisor V. Anantha Nageswaran on Saturday said that given the considerable impact of the West Asia conflict on India’s economy, the country should leverage the fallout to redouble its recent reform efforts to enhance India’s competitiveness and preparedness.
The ‘entrepreneurial mindset’ in bureaucracy, accompanied by enhanced speed of decision-making, is precisely what is called for if India is to emerge from this episode stronger, more resilient and more competitive, said Nageswaran in the Finance Ministry’s latest monthly economic review.
According to him, the impact of the conflict on India will be felt through four channels — supply disruptions to oil, gas and fertilisers and more importantly, to exports as well; higher import prices; higher logistics costs (freight and insurance) and a possible decline in remittances by Indians in the Gulf countries.
“The combined impact across the four channels on growth, inflation, the fiscal balance, and external balances is likely to be significant,” he mentioned.
India will need to provide immediate relief to the most affected and vulnerable businesses and households, and at the same time, generate fiscal space to meet strategic and long-term needs that this conflict has underscored, such as the need to build long-term buffers in several commodities and materials, not just energy-related ones, said the CEA.
This calls for re-prioritisation of spending and targeted relief for the most affected and vulnerable businesses and households.
India’s merchandise trade deficit exceeded $280 billion in 2024-25, amounting to around 7.5 per cent of GDP. The trade deficit will rise significantly in FY27, widening the current account deficit.
“Keeping it manageable will require burden-sharing between the government, via fiscal absorption, and households and businesses. Pass-through of higher import prices to end-users will also moderate demand growth and, with it, the pressure on the current account,” Nageswaran said.
Demand moderation will also ease the central bank’s dilemma over the appropriate monetary policy response to conflict-induced shocks. If demand moderates in response to higher prices, the central bank will be more inclined to treat the inflationary impact as a supply shock.
“Otherwise, it may be compelled to watch for second-round effects of higher import costs on inflation and respond accordingly. Higher interest rates burden the entire economy, whereas the pass-through of material prices falls on specific end-users,” he noted.
Successive global shocks this decade have left the world economy characterised by elevated uncertainty and rising fragility.
The escalation of tensions in West Asia since late February 2026 has added further disruption, affecting the Strait of Hormuz, a critical maritime chokepoint that handles around one-fifth of global seaborne oil trade, along with significant volumes of LNG and fertilisers.
(IANS)
