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India Must Use West Asia Crisis to Boost Reforms, Says Top Economist

Chief Economic Advisor V. Anantha Nageswaran argues that India should use the economic disruptions from the West Asia conflict as a catalyst to intensify reform efforts and enhance competitiveness. He outlines four key impact channels: supply disruptions, higher import prices, increased logistics costs, and potential declines in Gulf remittances. The CEA stresses the need for targeted relief for vulnerable groups while creating fiscal space to build long-term commodity buffers. He also notes that demand moderation from higher prices could ease the RBI's monetary policy dilemma by framing inflation more as a supply shock.

Key Points: CEA: Leverage West Asia Crisis to Redouble Economic Reforms

  • Conflict impacts oil & export supply
  • Calls for entrepreneurial bureaucracy
  • Need for fiscal re-prioritisation
  • Manageable trade deficit requires burden-sharing
  • Demand moderation eases RBI's dilemma
3 min read

India should leverage West Asia crisis to redouble reform efforts: CEA Nageswaran​

CEA Nageswaran says India should use the West Asia conflict fallout to accelerate reforms, build buffers, and manage trade deficits.

India should leverage West Asia crisis to redouble reform efforts: CEA Nageswaran​
"The combined impact across the four channels on growth, inflation, the fiscal balance, and external balances is likely to be significant - V. Anantha Nageswaran"

New Delhi, March 28

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

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Reader Comments

P
Priya S
The point about targeted relief for vulnerable households is crucial. During any global shock, it's the middle and lower-middle class that suffers the most with inflation. The government must ensure support reaches them directly, not get lost in the system. 🙏
R
Rohit P
"Burden-sharing between government and citizens" – this is the key phrase. We all need to be prepared for slightly higher prices if it means building long-term security. But transparency is needed. Where will the government cut spending to create this fiscal space?
S
Sarah B
As someone working in exports, the logistics cost point hits home. Insurance premiums have already gone up. This crisis should be the final push for India to develop its own large-scale shipping and logistics companies. Over-dependence on foreign firms is a strategic risk.
V
Vikram M
Good analysis, but I respectfully disagree on one point. Calling for 'demand moderation' essentially means asking people to consume less. In a growing economy aiming for 8%+ GDP, isn't that contradictory? We need supply-side solutions, not asking citizens to tighten their belts again.
K
Karthik V
The remittances angle is worrying. So many families in Kerala, Tamil Nadu, UP depend on Gulf money. If that slows, the impact will be very localised and severe. The state governments need to be part of this contingency planning. Jai Hind.

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