Kamal Ghorui
Iran war will probably hurt growth, but proactive policies can absorb much of its impact
It’s clear that 2026 won’t be a great year for the economy. It started with projections of 6.8-7.2% growth.
A day before US attacked Iran, the chief economic adviser actually raised his estimate to 7.1-7.4%. But now, with oil shock and falling rupee, Moody’s sees India’s growth slowing to 6% this year.
Reasons are clear – high input costs will raise prices, high inflation will depress demand.
What can govt do? To start with, make rupee’s weakness India’s strength. A year ago, $1 was worth ₹85, roughly. Now, it’s around ₹96.
That makes Indian exports cheap, and competitive. Foreign manufacturers would like to set up shop here, so roll out the red carpet. Now is also the time to wean India off imported oil and gas, decisively.
PM has urged farmers to switch to solar pumps, but EVs and biofuels should be thrust areas as well. Meanwhile, if Russia is willing to sell oil for rupees, we should sign some long-term contracts. And, to earn more dollars, let’s court tourists, including medical tourists, this year.
What about consumption demand, biggest driver of India’s economy? Inflation is bound to hurt it, especially at the lower end of consumption pyramid, despite generous cash transfers by Centre and states. But, as the pandemic showed, premium demand remains resilient, so companies should target it to drive growth. Post-GST momentum in white goods and automobiles should be maintained.
The top 1% are likely to spend more when they’re feeling wealthier due to strong stock markets. So, small policy tweaks – for instance, raising EPFO investments in stocks – can have the desired effect.
Oil, gold, fertiliser, cooking oil – four things govt wants you to buy less – and electronics together make up about half of India’s import bill. Since most of these can be intermediate goods – crude for plastics, cooking oil for cookies – if foreign investment, manufacturing, and consumption increase, India’s import bill may go up.
But higher imports could be easily offset by increasing export earnings. We can play safe by hunkering down, and settle for 6% growth, or take some risks and aim for 7%.
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