The economy entered this year with expectations of growth exceeding 7%. Then came the energy shock triggered by the conflict in West Asia. A spike in crude oil prices threatened to derail the outlook, given India’s heavy dependence on imported energy. With tensions now easing, those fears have receded considerably. More importantly, the economy has displayed remarkable resilience through the crisis.
Manufacturing output has remained robust, passenger vehicle sales continue to surprise on the upside, and consumer durable companies are ramping up production in anticipation of a healthy festive season. Bank credit growth has stayed strong, pointing to sustained economic activity.
Perhaps the biggest positive has been exports. Despite widespread fears that higher US tariffs would dent shipments, non-oil exports recorded double-digit growth in April and May, underscoring the competitiveness and adaptability of Indian industry.
The evidence suggests that domestic demand, corporate balance sheets, and export competitiveness have together provided a sturdy cushion against external shocks.
The impact of the energy shock appears to have been confined to a few sectors rather than spreading across the economy. That is no small achievement for a country that imports more than three-fourths of its crude oil and about half its natural gas requirements. Sound crisis management certainly helped.
The government ensured uninterrupted crude supplies despite disruptions around the Strait of Hormuz by diversifying sourcing and stepping up purchases from Russia and other suppliers. Domestic refiners, meanwhile, increased liquefied petroleum gas (LPG) production to offset lower imports.
But the outcome also reflects years of investment in infrastructure, stronger logistics, diversified energy procurement, and a more resilient corporate sector. Together, these factors enabled the economy to absorb an external shock that, in earlier years, could have proved far more disruptive.
The government also absorbed a substantial part of the oil shock instead of passing it on immediately to consumers and businesses. Excise duties on petrol and diesel were cut, entailing a sizeable revenue sacrifice, while retail fuel prices were adjusted only after a considerable lag.
LPG prices too were kept well below import-linked costs, cushioning household budgets. Targeted support was extended to the sectors most affected, including aviation and micro, small, and medium enterprises, echoing the calibrated policy response adopted during the pandemic.
Several initiatives accelerated during the crisis — including greater use of piped natural gas, expansion of strategic crude reserves, ethanol blending, and coal gasification — will strengthen India’s long-term energy security and reduce its vulnerability to future external shocks.
The episode has also underlined the value of building policy buffers before crises erupt rather than scrambling to create them afterwards.
The immediate crisis may have passed, but the respite is unlikely to be permanent. Geopolitical risks remain elevated, and India cannot assume that energy markets will remain benign. Recent measures to attract foreign portfolio inflows and mobilise foreign currency non-resident (bank) deposits have eased concerns over the balance of payments and helped stabilise the rupee.
But portfolio and debt inflows cannot substitute for durable foreign direct investment. As a large emerging economy aspiring for developed-country status by 2047, India must attract more long-term equity capital by reinforcing investor confidence in its growth story, policy stability, and institutional strength.
That calls for pressing ahead with structural reforms. The economy has demonstrated that it can withstand a major external shock. The task now is to convert that resilience into sustained growth of close to 8%, while steadily reducing dependence on imported energy and insulating the economy from future geopolitical disruptions.