EAC-PM calls for monitoring weak spots to counter external disruptions

PREPARE BEFORE SHOCKS | India told to map vulnerabilities as crisis risks rise

West Asia crisis exposed vulnerabilities, threatened growth, inflation, and supply stability

PTI

New Delhi

India must map and monitor key economic vulnerabilities, particularly in areas such as energy, food, fertilisers, metals, and critical minerals, and proactively address both supply disruptions and price volatility to mitigate the impact of a future West Asia-like crisis, a top government official said on Monday.

Economic Advisory Council to the Prime Minister (EAC-PM) Chairman S Mahendra Dev in an interview with PTI further said the ongoing West Asia conflict highlights the need for a forward-looking approach to risk management. Dev said this calls for a substantial strengthening of physical buffers, including an expansion of strategic petroleum reserves and the creation of stockpiles for essential commodities, going beyond the conventional reliance on foreign exchange reserves and foodgrain stocks.

Since the beginning of the war in West Asia on February 28, crude oil prices soared to a four-year high of $126 per barrel on Thursday, from about $73 before the war. Dev said reducing excessive dependence on imports is critical. This can be achieved through greater diversification of supply sources and trade routes, alongside more strategic and effective utilisation of free trade agreements.

Noting that uncertainties and frequent shocks will be there at the global level in future also, Dev said the corporate sector in India has received significant profits in the last few years. Dev pointed out that India has made several domestic reforms, including ease of doing business to attract domestic and foreign investment.

To cushion the impact of the ongoing conflict in West Asia, a combination of fiscal, monetary, trade and supply-side interventions is being deployed. The government has developed an emergency response mechanism, which has helped it respond to the crisis since Covid.

Dev noted that the West Asia crisis can have an impact on the global economy through higher energy prices, slow growth in trade, supply chain shocks, higher logistic costs, and lower remittances. The conflict will have some impact on the Indian economy as the country imports 90% of its crude requirements and 50% of its gas requirements.

However, the economist observed that India has displayed resilience in the face of global headwinds generated by the war in West Asia. The economy has been strong and robust due to strong fundamentals: fiscal deficit 4.4% of GDP; debt-GDP ratio centre 56% of GDP; combined debt with states 81% of GDP.

Dev predicted that the current account deficit was below 1% in FY26 but it may increase in FY27 but can be managed. Assuming $95 per barrel of crude oil, the GDP growth would be 6.7% and inflation 5% in FY27. India's economic growth in FY26 is estimated at 7.6%. According to Reserve Bank of India (RBI) baseline projections, real GDP growth for FY27 will be 6.9% with 4.6% inflation assuming $85 per barrel of crude oil.