Exclusive | ‘Triple whammy risk looms over India,’ says IMF’s Krishna Srinivasan

Are we heading toward a “lost decade” for some emerging Asian economies, given that they have to bear a disproportionately larger burden of the West Asia war?

It’s too early for a rush to judgment. In recent years, Asia has faced a series of shocks—Covid, Ukraine, tariffs, and now the West Asia conflict. Despite concerns, especially given the region’s high trade exposure and supply chain integration, Asia has remained resilient. Even after the tariff shock, the region held up well, supported by a strong tech cycle, accommodative macro policies, and easy financial conditions. Tariff cuts—including for India from 50% to 10%—also provided a boost.

However, this latest shock is different. Asia is highly energy-intensive, with energy use averaging about 4% of GDP—twice that of the EU—and relies heavily on imports (around 2.5% of GDP). This makes it more vulnerable.

Under a reference scenario, Asia’s growth may slow from 5% to 4.4% this year and 4.2% next year. If energy prices ease by 2027, the region could see a cumulative output loss of about 1% of GDP; if prices stay elevated, losses could reach 2%. Inflation could rise by 1 percentage point in a moderate scenario and up to 4 percentage points in a severe one.

Energy-intensive, import-dependent economies like India, the Philippines, and Thailand are likely to be hit harder.

With global liquidity tightening, are emerging Asian markets at risk of sudden capital outflows?

Last year, financial conditions were very supportive for Asia, and the region entered this phase from a position of strength, helped by lower tariffs and supportive macro policies. However, conditions could now tighten. Equity markets have already seen capital outflows, exchange rates have come under pressure, and sovereign yields have risen across many Asian economies, including India, reflecting fiscal concerns. A third downside risk is weather-related—if the monsoon underperforms or there is a strong El Niño event, the situation could worsen further. In that case, the economy could face a “triple whammy.” These are the key downside risks that need to be taken into account.

What are the key downside risks you see for the Asian economies in a year?

For example, India’s energy intensity is about 5% of GDP, which is quite high. The key downside risk is that if this shock lingers and is not resolved quickly, it could pose a sharp risk to growth in India, much like in other energy-intensive, oil-importing economies. ASEAN countries such as Indonesia, the Philippines, and Thailand would also be hit hard.

The duration of the shock is critical. Even if conditions normalise today, there are significant lags before the benefits are felt, so the impact would persist for some time.

What is the worst-case projection for India’s GDP growth, given the energy shock, fertiliser crisis and El Niño?

For Asia, growth could fall by 1 percentage point cumulatively through 2027 under an adverse scenario, and by 2 percentage points in a severe scenario (from the baseline of 4.4% this year and 4.2% next year) across the six major G20 Asian economies, including India.

Government officials have talked about fiscal strain due to the West Asia conflict…

Countries across the region are not allowing prices to play out, providing tax breaks and subsidies. If the crisis continues, it will have a significant bearing on GDP and fiscal space.

So far, India has managed it and comes on a stronger footing than many others—macro fundamentals are strong, growth momentum was solid, inflation has been below target, reserves are high, and fiscal policy has been prudent. It has done well in policy management and overall macro fundamentals. But the shock is significant: India is highly energy-intensive and heavily import-dependent, notably via the Strait of Hormuz, which puts it in a much more difficult position.

Should and how soon India pass on rising costs to retail prices?

Our advice, not just for India but for every country, is to allow price signals to play out, because otherwise demand won’t adjust to supply. India cut excise duty on fuel and provides fertilizer subsidies. If prices don’t play out, it creates a demand-supply mismatch, leading to bigger problems and higher aggregate prices later. At the same time, some people will be hurt, so support should be targeted to those who really need it.

India is one of the fastest-growing and largest economies by GDP, yet its per capita income remains very low, even below Bangladesh. Isn’t this a serious concern?

India’s large population means per capita income can be lower than in countries with smaller populations. But aggregate GDP and living standards have risen—the trend is positive. The focus should not be on per capita comparisons, but on achieving higher growth beyond the current 6.5% to 8%+ for Viksit Bharat by 2047. This requires reforms—greater economic diversification, stronger trade integration within Asia, better implementation of labour laws, improved investment climate, policy predictability, reduced judicial backlogs, and deregulation. These will lift growth and per capita incomes.

China is apparently creating hurdles in supply chain relocation to countries like India…

For India, this is an opportunity to be part of the China+1 strategy. There is no single reform—India has to go full throttle. Vietnam has done very well, attracting investment and integrating faster. India should similarly open up to more FDI and lower trade barriers so firms can import cheaper inputs and stay competitive.

Because of the lack of an AI play, is India losing out significantly and becoming less relevant to investors?

India does reasonably well in AI adoption and preparedness, but the key issue is whether it has the right skills for the next level. India must rethink education, focus on continuous learning, and better align workforce skills with evolving job market needs.

In India, growth seems driven by government spending while private investment and job creation lag despite strong corporate profits. Do you agree?

Private investment as a share of GDP in India is relatively strong, but it is not enough and remains sluggish despite healthy corporate and bank balance sheets. The issue lies in factors like a level playing field, policy predictability, judicial and bankruptcy reforms, infrastructure, and trade integration. It’s a combination of reforms that will kickstart private investment. Jobs will ultimately come from the private sector, not the government.

The rupee has been volatile and underperforming its peers during the recent crisis. Should policymakers be more tolerant of its depreciation?

Compared to 2025, financial conditions are tightening for India—stronger dollar, rising yields, weaker equities. Rupee depreciation can raise inflation but also support exports. The recommendation is to let the exchange rate act as a shock absorber, with intervention only if movements become too disorderly or markets turn illiquid.

Is India at risk of growing fast but not growing rich?

In a large country, public policy must ensure gains are shared more evenly. Reforms can push growth to 8%+, but equitable distribution needs a level playing field, better skills, and equal opportunities for people and firms. Jobless growth is a broader concern, with high levels of youth unemployment in the Asia Pacific, including India —even among the educated—raising questions about whether the right skills are being created.