Oil markets seized up; shipping lanes through one of the world’s most critical chokepoints went dark. And yet, by most measures, the Indian economy sailed through. Addressing this contrast, Prime Minister Narendra Modi on Monday said that India displayed “remarkable stability” during the West Asia crisis, even as the economy grappled with structural vulnerabilities exposed by the conflict.
Modi, sharing Chief Economic Advisor V Anantha Nageswaran’s column, attributed the economic resilience to ten years of macroeconomic groundwork and a policy apparatus built to move quickly under pressure.
“It has been achieved by ensuring macroeconomic stability over the last decade while making policy-making responsive and agile. We are committed to further the process of Aatmanirbharta to safeguard our nation,” the PM said.
The backdrop explains why the stakes were so high. When the United States and Israel attacked Iran on February 28, it led to the shutdown of the Strait of Hormuz. With that, roughly a fifth of the global oil and gas supply was effectively taken offline.
The fallout was uneven as import-dependent economies like Japan absorbed a direct hit. Less obviously, the energy exporters of West Asia were squeezed just as hard, their infrastructure damaged by strikes and their export revenues reduced to nothing.
According to Nageswaran’s column, India’s relatively smooth passage through that storm was not accidental. New Delhi held the line on cooking gas prices, keeping household cylinders near Rs 900 and cheaper still for low-income families. Rather than let pump prices climb in step with crude, the government cut excise duty on petrol and diesel by Rs 10 a litre and absorbed the difference itself, the CEA stated.
Nageswaran defended the rationale for state intervention. “In such uncertainty, only the government has the balance sheet and the time horizon to bear the risk, and it chose to absorb the impact on the fiscal account rather than on households and firms,” he wrote.
He noted that special support for airlines and a credit-guarantee scheme for micro, small and medium enterprises mirrored interventions used during the Covid-19 pandemic.
Luck played a role too. Crude prices, already softening from May, fell further as Chinese buying slowed and US reserve releases continued — tailwinds India did not engineer but benefited from regardless.
CEA cautions about what comes next
Nageswaran cautioned against complacency and warned that countries are increasingly weaponising supply chains and capital, meaning economic pressure from such crises could outlast the immediate disruption. India must treat the episode as a preview rather than a one-off, he noted.
To prepare, Nageswaran called for India to aggressively court foreign direct investment. “A balanced bilateral investment treaty framework, certainty in tax policy, state governments respecting the integrity of contracts, dependable logistics and single-window clearances that actually clear will draw the global supply chains now seeking to spread their bets,” he wrote.
‘Reduce import dependence’
He also urged India to reduce import dependence beyond crude oil, flagging vulnerabilities in merchandise and metals imports as well. Despite India’s relatively strong showing through the crisis, Nageswaran noted that comparable large economies still outperform it in domestic manufacturing.
“India must indigenise what it can produce competitively and what it must,” he wrote. The CEA added that trade bodies need to work harder on agreements with the United Kingdom and European Union, both set to take effect this year and expected to boost labour-intensive exports. He said none of this is achievable without a skilled workforce, calling for trade-skills training to proceed “on a war footing”.