FICCI Warns of West Asia Conflict Risks, Urges Industry-Government Action

The report indicates that early signs of stress are visible across sectors, warranting proactive measures to mitigate immediate risk as well as to build long-term resilience. The report emphasizes that this crisis, while challenging, also presents an opportunity for India to accelerate structural reforms aimed at strengthening economic resilience and reducing external vulnerabilities.

The report outlines a set of industry-led actions to enhance financial and operational resilience and also identifies specific areas where government support would be critical. A coordinated approach involving industry and government is essential to navigate the current challenges while further strengthening the foundation for a more resilient and self-reliant India.

The uncertainty surrounding the duration and escalation of the conflict makes it imperative for businesses to prepare for multiple scenarios, ranging from short-term disruptions to prolonged instability. The report suggests a two-pronged strategy for industry--focused on financial resilience and operational continuity.

On the financial front, companies are advised to undertake scenario-based planning by developing a "Middle East Crisis" version of their budgets, with necessary actions to optimize sales, margins, and capex depending on the sector's sensitivity to the crisis. Firms are encouraged to secure additional funding lines and hedge currency risks to protect cash flows.

At the same time, businesses must proactively assess the financial health and continuity risks of key suppliers and customers. Reviewing insurance coverage and strengthening cybersecurity protocols are also identified as critical components of risk management in an increasingly uncertain environment.

To address operational disruptions, the report outlines several short-term measures. These include prioritizing demand and aligning production schedules with the availability of critical inputs, optimizing logistics through shipment consolidation, and enhancing coordination with global shipping lines. Some companies have already established cross-functional "war rooms" to manage real-time supply shortages and ensure business continuity.

Flexibility and diversification of the energy mix are another key recommendation. Industry players are encouraged to explore multi-fuel options, including biofuels and electrification of processes, as well as increase reliance on alternative energy sources such as solar power, piped natural gas (PNG), and coke oven gas. In parallel, firms should adopt energy efficiency measures, including conducting energy audits, optimizing equipment usage, and leveraging AI-driven monitoring systems for operational efficiency.

Beyond immediate measures, the report underscores the importance of undertaking structural shifts by industry for ensuring long-term resilience.

It is important to ensure diversification of supply chains for critical inputs. Companies are encouraged to reduce dependence on specific geographies by expanding their global supplier base and developing domestic sourcing capabilities or undertaking backward integration of critical components, wherever feasible.

The report also highlights the need to accelerate the energy transition by increasing the share of renewable energy through captive generation and open access and investing in green hydrogen. At the same time, adopting energy-efficient technologies can be useful in optimising energy usage. Firms are also encouraged to build resilience across the supply chain by working with vendors to enable their energy transition from fossil fuel-based energy sources.

Logistics resilience is another focus area. Businesses are encouraged to explore alternative trade routes, enhance use of multi-modal transport, and invest in digital technologies for real-time supply chain visibility.

The Government of India has taken several proactive steps to mitigate the impact of the crisis, including the formation of empowered groups, reduction in fuel excise duties, introduction of the RELIEF scheme, restoration of RoDTEP benefits, and duty rationalisation for SEZs, amongst others. Building on these efforts, the FICCI report identifies additional areas where further government support will be crucial, both in the near-term and the long-term.

Ensuring stable energy supplies remains a top priority, for which the government can continue to leverage diplomatic channels for securing long-term supply arrangements. At the state level too, the governments can consider setting up state-level energy security cells to monitor local vulnerabilities, ensure real-time coordination, and trigger contingency protocols.

Financial and regulatory support for MSMEs is also critical. The government may consider provision of emergency financing for MSMEs and issuance of advisories to address force majeure-related risks in public procurement contracts, ensuring that businesses are not penalized for delays caused by factors beyond their control.

The report also illustrates key policy interventions for building long-term resilience. These include diversifying oil and gas sourcing through long-term agreements with multiple countries, expanding domestic gas infrastructure, and enhancing strategic petroleum reserve capacity. Scaling up renewable energy and clean technologies, including green hydrogen, battery storage, and biogas, will also be essential for achieving energy security.

In addition, development of resilient trade infrastructure, such as alternative economic corridors and strengthening of multimodal connectivity, has also been highlighted as a strategic priority. Strengthening the domestic manufacturing ecosystem and developing new manufacturing clusters to geographically diversify industrial capacity and reduce concentration risks will also be important.

The Government may also initiate consultations within the GST Council to explore a roadmap for the inclusion of petroleum products under GST. This would help reduce cost burdens, improve supply chain efficiency, and enhance industry competitiveness.

In the agricultural sector, ensuring fertilizer availability and promoting adoption of bio-fertilizers and precision agriculture will be important measures to ensure long-term input resilience.

- ANI