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Page 4 - The Indian EYE 052926
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    COVER STORY                                                               MAY 29, 2026     |  The Indian Eye                    4

                                                      IRAN WAR SHOCK

                   WAY FORWARD

                 FOR ECONOMY

              The Iran war has exposed India’s vulnerabilities on oil, trade and inflation, but economists believe

                    the crisis can still become a turning point for structural reform and economic resilience.

            OUR BUREAU
            New Delhi / Dubai / Mumbai

                  he  escalating  conflict  in  West
                  Asia has pushed the Indian
            Teconomy into one of its most
            difficult external crises in years. Rising
            crude oil prices, supply chain disrup-
            tions, capital outflows and mounting
            inflationary  pressures  are  beginning
            to hit growth, jobs and household
            budgets simultaneously. Economists
            warn that the effects are no longer
            theoretical. They are already visible
            in  India’s  current  account  deficit,
            weakening rupee, slowing industrial
            activity and rising import costs.
                Yet amid the anxiety, economists
            and policy experts also see a possible
            path out of the crisis. Their prescrip-
            tions differ in emphasis, but together
            they point toward a broader strategy:
            using  India’s  financial  buffers  wise-
            ly, accelerating structural reforms,
            diversifying supply chains, investing
            in human capital and turning global
            uncertainty into an opportunity for
            economic repositioning.
                The immediate danger comes
            from energy. India remains heavily
            dependent  on imported crude  oil,   A large crowd of people on two-wheelers queues up at a Bharat Petroleum pump amid fuel shortage and price hike concerns in Bhubaneswar on Friday (ANI)
            and the Iran war has transformed
            oil prices into the single biggest risk   current account deficit is expected to   warning that the current account   The same increase also feeds directly
            to macroeconomic stability. Accord-  widen sharply to 2.2 per cent of GDP   deficit  could  rise  to  2.1  per  cent  of   into consumer inflation.
            ing to Crisil Intelligence, the closure   from 0.8 per cent.        GDP. The reasons are clear: elevated   The pressure is already visible in
            of the Strait of Hormuz has created   Rajani Sinha, Chief Economist   crude oil prices, rising freight and in-  daily life. Mehrotra pointed to short-
            “the largest energy shock on record.”   at CareEdge Ratings, echoed these   surance costs, disrupted trade routes   ages of industrial LPG affecting ce-
            The agency warned that the damage   concerns. “The West Asia crisis is   and falling foreign capital inflows.  ramics and restaurants. “There has
            to oil and gas infrastructure in West   going to impact the Indian economy   India’s vulnerability is magnified   been a significant decline in the num-
            Asia could continue affecting prices   through various channels,” she said.   because oil affects nearly every sec-  ber of jobs in the restaurant industry
            even after trade routes reopen.   “Not  just  growth  and  inflation,  but   tor of the economy. Former UN Eco-  because LPG has simply not been
                That shock is already feeding   it’s also going to adversely impact   nomic Advisor Santosh Mehrotra ex-  sufficiently available,” he noted.
            through multiple layers of the econ-  government finances and, very wor-  plained the scale of the transmission   Inflation is emerging as the sec-
            omy. Crisil projected India’s GDP   ryingly, also India’s balance of pay-  effect. “For every USD 10 increase   ond major threat. Crisil expects con-
            growth to slow to 6.6 per cent in   ments situation.”               in the international price of oil, it in-  sumer price inflation to jump sharply
            fiscal 2027 from 7.6 per cent in the   Sinha projected  growth  moder-  creases our current account deficit by   to 5.1 per cent in fiscal 2027 from 2
            previous year. At the same time, the   ating to “around 6.7 per cent” while   about 0.3 per cent of GDP,” he said.   Continued on next page... >>

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