If President Donald Trump of the USA has indeed pushed the global trading order into an intractable chaos by unleashing a tariff war of an unprecedented kind on trading nations across the canvass, the escalating war between the US-Israel combine and Iran in West Asia has turned everything topsy-turvy for the entire global community. The effect of the consequent uncertainty, however, is increasingly becoming unfathomable. It is evident that a trust deficit of unheard of proportions has crept into the world system. Since events followed each other in quick succession, countries are still struggling to get a measure of the impact of these actions on their economies. What is clear, however, is that the global macroeconomic landscape has undergone a major metamorphosis.
The war in West Asia has already triggered supply chain disruptions and driven energy costs up north. Commodity prices have shot up and financial markets have turned extremely volatile. With both sides blowing hot and cold, neither is hazarding any guess on the timeline for an end to the war. Will it intensify? Will it spread? Will it be prolonged? Given these imponderables, the risks to the global outlook appear to be elevated. The war-related damages to energy and other infrastructure will only accentuate the inflation and growth risks. The portents are scary.
No doubt, inflation in India remains within the tolerance band set by the Reserve Bank of India. Yet, it is obvious that the upside risks have increased, driven by supply-side disruptions, including weather-related uncertainties. “Possible second-round effects with the supply shock transforming itself into a demand shock also warrant careful and continuous assessment,” argues an article published in the April bulletin of the Reserve Bank of India (RBI). Nevertheless, things don’t suggest an alarmist view at the moment. “Domestic high-frequency indicators for March, in general, do not reflect much adverse impact of the global supply chain bottlenecks, as some of the key risks have been contained by the government, ensuring uninterrupted availability of petroleum products across the country. Overall, demand conditions have remained resilient with greater support from rural areas,” it said. But there are signs that one can’t afford to brush aside. According to the article in the RBI bulletin, early signs of deceleration are evident in select indicators such as port cargo, air passenger traffic and purchasing managers’ outlook. The current public foodgrain stocks remain well above the buffer norms to meet any contingency requirements. However, the likelihood of below-normal rainfall during the south-west monsoon, due to possible El Niño conditions, poses a downside risk to agricultural output.
Despite the energy shock from West Asia, headline consumer price index (CPI) inflation for March showed a muted increase, accompanied by a rise in fuel inflation driven by an increase in domestic LPG prices and a pick-up in food inflation. Wholesale inflation, too, climbed up in March for the fifth consecutive month. In the fast-evolving backdrop, the Monetary Policy Committee, predictably, kept the policy rate unchanged in its April 2026 meeting and retained a “neutral” stance to retain flexibility to respond to incoming data. “In uncertain times such as this, it is important to be agile and nimble, maintain a broad policy stance and avoid making firm commitments to the future path of policy,” RBI Governor Sanjay Malhotra said. It is equally important for both the fiscal bosses and monetary managers to work in tandem to push proactive measures to secure the economy from the vicissitudes of the external pulls and pressures. The fast-emerging scene, perhaps, calls for a reconfiguration of both fiscal and monetary policy prescriptions.
