Former Chief Economic Advisor Dr Arvind Subramanian has cautioned that the ongoing US–Iran conflict is creating a serious economic disruption for India and the global economy, describing the situation as a “stagflationary shock” driven by supply chain disturbances, particularly in energy flows through the Strait of Hormuz.
He emphasised that the Indian government must act immediately to secure essential resources from global markets. According to him, there is an urgent need to diversify and expand sourcing of critical inputs such as oil, natural gas, and fertilisers. He stressed that India should actively explore every possible international supply channel to ensure availability at the earliest and most cost-effective terms.
With India importing nearly 85 percent of its crude oil requirements, rising global prices have already begun exerting pressure on the economy. However, Dr Subramanian pointed out that the crisis extends beyond oil, highlighting that disruptions in natural gas and fertiliser supplies could have equally significant consequences for industrial activity and agriculture.
He explained that the current situation reflects classic stagflation, where inflation rises while economic growth slows. In his assessment, India’s GDP growth could decline by more than one percentage point, while inflation may increase by around one to one and a half percentage points, creating a dual economic challenge.
Early signs of this slowdown are already becoming visible. He noted that sectors dependent on fuel and energy inputs are beginning to feel the strain, citing instances such as restaurants shutting down due to shortages of natural gas. This, he said, indicates that the stagnation aspect of the crisis is already taking hold.
On the global front, he warned that the impact could be widespread, potentially pushing major economies towards recession. With the United States and Europe facing slowdown risks and China’s growth expected to weaken, the interconnected nature of the global economy leaves little room for any country to remain unaffected.
Dr Subramanian also highlighted the constraints faced by governments worldwide in responding to such crises. High levels of public debt have limited their ability to deploy large-scale fiscal measures, reducing what he described as “policy firepower” compared to previous global shocks.
In the short term, India has attempted to cushion the impact through measures such as reducing excise duties and providing subsidies, particularly for fuel and fertilisers. However, he warned that such interventions cannot be sustained indefinitely, and prolonged disruptions may eventually force governments to pass on higher costs to consumers.
He also addressed concerns regarding the weakening of the Indian rupee, noting that while depreciation has occurred, it is not the worst among global currencies. However, he pointed out that the currency had already been underperforming before the conflict, suggesting a need for stronger macroeconomic fundamentals.
Despite the challenging outlook, Dr Subramanian identified a longer-term opportunity. He described the crisis as a wake-up call for structural reforms, urging India to build strategic reserves of key commodities and reduce dependence on fossil fuels. He emphasised that investment in renewable energy and strengthening electricity infrastructure will be crucial for enhancing resilience.
He concluded that while immediate measures are necessary to manage the current disruption, long-term resilience will depend on reducing external vulnerabilities and building a more diversified and sustainable economic framework.
