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CEA V Ananth Nageswaran says balanced government measures, diversified energy sourcing and timely intervention helped India withstand the economic shock of the Gulf conflict.
AI-generated, representative image for India’s stability amid Middle East war (News18)
Chief Economic Advisor (CEA) V Ananth Nageswaran said India successfully weathered the economic fallout of the recent Gulf conflict, which temporarily disrupted shipping through the Strait of Hormuz, and avoided a potential fuel crisis and macroeconomic instability through a combination of balanced policy measures and favorable global developments.
According to an article in Business Standard, Nageswaran reflected on the country’s response to the conflict and wrote that despite fears of an oil shock, supply disruptions and a balance of payments crisis, India managed to maintain uninterrupted fuel supplies, stable domestic prices and overall macroeconomic stability.
“When the attacks closed the Strait of Hormuz in late February, the script had already been written for India,” he wrote, noting that the country imports about 90 percent of its crude oil and more than half of its cooking gas through the Gulf.
However, “After almost four months had passed, not a single retail shop went vacant. Every household that wanted a cylinder got a cylinder. India faced neither a 1991 nor a 2013 situation.”
He described the government’s response as deliberate, gradual and similar to its approach to tackling the COVID-19 pandemic, saying the outcome was “no accident, and it was not the result of luck alone”.
Families were given top priority
According to the CEA, the government’s priority during the crisis was to protect households from supply shortages and price shocks.
Although the import-linked cost of a standard LPG cylinder rose to more than Rs 1,600, keeping the retail price for consumers around Rs 900, prices for poor families were even lower.
Commercial and wholesale users were asked to reduce consumption to ensure uninterrupted domestic supply.
Explaining the logic behind prioritizing domestic consumers, he wrote, “Memories of the early pandemic months, when panic among migrant workers triggered a wave of reverse migration into villages, were instructive.”
Supply chains diversified, domestic production increased
Beyond price support, India strengthened energy security by rapidly increasing domestic LPG production and diversifying import sources.
Nageswaran said domestic refiners increased LPG production by about 50 per cent within a week, leading to a reduction in imports.
At the same time, India expanded purchases from the United States and Russia, brought in additional suppliers and won the necessary concessions to continue importing Russian crude.
The government has also accelerated long-term initiatives including expanding piped natural gas connections, promoting coal gasification, increasing ethanol blending and enhancing strategic crude oil storage following the Prime Minister’s visit to the UAE.
He said India was one of the few countries that managed to keep freight movement uninterrupted despite the sharp decline in shipping through the Strait of Hormuz.
Government bears cost to protect consumers
The CEA said that in order to protect the broader economy from rising fuel costs, the Center chose to bear most of the financial burden rather than passing it on to consumers.
The government cut excise duty on petrol and diesel by Rs 10 per litre, resulting in a revenue loss of about Rs 1.7 trillion.
It also eased taxes on aviation turbine fuel, while keeping retail fuel prices stable for more than two months before public sector oil marketing companies imposed only limited increases.
“The argument bears stating clearly: In such uncertainty, only the government has the balance sheet and time frame to take the risk,” Nageswaran wrote. He said the government has deliberately absorbed the fiscal impact rather than passing the burden on households and businesses.
Support measures for airlines and micro, small and medium enterprises were also extended through targeted assistance and credit guarantee schemes based on the COVID-era response.
The opinion article highlighted a number of fiscal measures aimed at safeguarding India’s external sector during the crisis.
The government removed withholding tax and capital gains tax on foreign institutional investment in government securities, fully expanding the scope of the accessible route to attract foreign investment in the domestic bond market.
A new non-resident dollar deposit scheme is also expected to strengthen foreign exchange inflows, while India’s existing free trade agreements support export growth.
According to Nageswaran, services exports as well as non-oil and non-gems and jewelery merchandise exports during April and May 2026 grew by more than 12 per cent compared to the same period last year.
He also pointed to strong investment indicators, noting that gross foreign direct investment reached $95 billion last fiscal year, up from the post-pandemic range of $70-80 billion.
Meanwhile, India’s current account deficit stood at only 0.6 per cent of GDP in FY26 and is expected to increase marginally in FY27.
‘Fate lent a hand’
While giving credit to government policy, Nageswaran acknowledged that favorable international developments also played an important role.
He said that although crude oil prices initially rose above $120 a barrel after the closure of the strait, they later fell below $100 as China’s oil demand weakened and the United States continued to release oil from strategic reserves.
China’s resumption of fertilizer exports also eased pressure on India’s fiscal position.
“It is also important to acknowledge, honestly, that luck helped,” he wrote, adding that if oil prices had remained high, or the conflict had continued longer, the economic outlook would have been much more challenging.
He commented, “Indeed, fortune ultimately favors good policymakers.”
The CEA also cited Goldman Sachs’ recent decision to raise India’s growth forecast to 6.8 per cent for calendar year 2026 and 6.5 per cent for FY27, 30 basis points higher than its earlier estimate.
Long-term challenges remain
Despite successful management of the immediate crisis, Nageswaran cautioned against complacency, arguing that geopolitical fragmentation and increasingly uncertain global supply chains could continue to put pressure on India’s balance of payments.
He stressed the importance of attracting more FDI through a balanced bilateral investment treaty framework, greater tax certainty, contract enforcement by states, reliable logistics and a truly effective single-window clearance mechanism.
The CEA also argued that India should reduce its dependence on imports beyond the energy sector.
Pointing out that India’s goods trade deficit remains significant even after excluding oil and gold imports, he said the country should expand domestic manufacturing where it is globally competitive, while promoting labour-intensive exports by making full use of trade agreements, especially the new one with the United Kingdom and the European Union.
He also called for accelerated efforts to equip young Indians with business-related skills.
Looking ahead, Nageswaran said India now faces a different set of economic challenges, including an underperforming southwest monsoon and the growing impact of artificial intelligence on jobs and society.
He wrote, “The Gulf conflict tested one kind of resilience; the coming years will test others.”
“India finished the first Test in good shape. This is a reason for calm confidence and moving forward into the next Test,” he said.
About the author
Vani Mehrotra is Deputy News Editor at News18.com. She has over 10 years of experience in national and international news and has previously worked on multiple desks.
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