Economic Stress Test

India is entering a period of economic stress. The conflicts and confrontation have disrupted energy supplies, weakened the rupee and triggered capital outflows. The current crisis could prove more serious than both the 2008 global financial crisis and the 2013 taper tantrum.

Listen to this article
The 2008 crisis was largely financial, while the 2013 episode was mainly about currency instability and capital flight. Today’s challenge is broader. For an import-dependent economy like India, the impact spreads quickly across transport, agriculture, manufacturing and household expenses. The pressure is already visible in economic indicators. The rupee has weakened by about 11 per cent against the dollar over the past year, while foreign portfolio investors have pulled out more than USD 21 billion this calendar year, the highest sustained outflow since 1991.
Weakened rupee, increasing inflation
India’s import bill is also swelling rapidly. Combined imports of crude oil, petroleum products, gold, silver and fertilisers reached roughly USD 281 billion in FY26, accounting for more than one-third of India’s total merchandise imports. The government has started responding through selective controls, to discourage non-essential imports and reduce pressure on foreign exchange reserves. Fuel prices are also expected to rise gradually in the coming months. Policymakers understand that sharp increases in petrol, diesel or LPG prices can quickly spread inflation through transport and logistics costs. Despite these pressures, India still has important advantages. Unlike many countries that import refined fuels directly, India has one of the world’s largest refining sectors and maintains a refining surplus. Discounted crude oil imports from Russia have also helped cushion part of the shock.
Still, the broader lesson is clear. Wars in Eastern Europe and West Asia are no longer distant geopolitical events for India. They are directly influencing inflation, currency stability, industrial costs and household consumption across the economy. India needs to work on greater domestic resilience.             -Author is the Founder of GTRI

Latest

Phoenix Kothari to set up Rs1,000-cr facility in Ramnad

The MOUs were signed at the Vettri Tamil Nadu...

Here are the key pacts signed by TN

Light House Green Data Center Pvt Ltd will invest...

25 foreign firms to set up base in TN

Germany's Bitzer, a leading global manufacturer of HVAC compressors,...

Daimler, YKK and Saint-Gobain sign pacts with TN

Daimler India Commercial Vehicles will invest Rs 4,000 crore...

Newsletter

Don't miss

Phoenix Kothari to set up Rs1,000-cr facility in Ramnad

The MOUs were signed at the Vettri Tamil Nadu...

Here are the key pacts signed by TN

Light House Green Data Center Pvt Ltd will invest...

25 foreign firms to set up base in TN

Germany's Bitzer, a leading global manufacturer of HVAC compressors,...

Daimler, YKK and Saint-Gobain sign pacts with TN

Daimler India Commercial Vehicles will invest Rs 4,000 crore...

Textile firms to invest Rs 6,500 crore in TN

Sri Lanka's MAS Holdings, South Asia's largest apparel manufacturer,...

Phoenix Kothari to set up Rs1,000-cr facility in Ramnad

The MOUs were signed at the Vettri Tamil Nadu Investment Conclave presided over by Chief Minister C Joseph Vijay . Phoenix Kothari Footwear will invest...

Here are the key pacts signed by TN

Light House Green Data Center Pvt Ltd will invest Rs 10,000 crore for developing a hyperscale data centre in Thoothukudi with AI capabilities creating...

25 foreign firms to set up base in TN

Germany's Bitzer, a leading global manufacturer of HVAC compressors, will make its India debut in Kanchipuram with an investment of Rs 300 crore. Taiwan's Bao...