India is facing a “live balance of payments stress test” due to the ongoing West Asia crisis, but the country’s macroeconomic fundamentals and reform momentum place it in a stronger position than many emerging economies to weather the turbulence, chief economic advisor V Anantha Nageswaran said on Tuesday.
He cautioned that the conflict in West Asia has moved beyond a geopolitical concern and now poses direct risks to inflation, the current account deficit (CAD), the balance of payments (BoP), and the rupee.
“The West Asia crisis, therefore, is not a foreign policy concern that occasionally bleeds into economic planning. It is a live balance of payments stress test, with direct consequences for inflation, the current account, and the exchange rate,” he said.
Managing the current account credibly, financing it, and preventing further currency depreciation are the central macroeconomic imperatives of FY27, he said.
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Addressing the Confederation of Indian Industry Annual Business Summit here, Nageswaran said India imports nearly 87% of its crude oil requirement, with around 46% transiting through or near the strategically crucial Strait of Hormuz. He said tanker traffic through the route has sharply declined, while 60% of India’s LPG requirement is imported, with more than 90% sourced through the Gulf region. In addition, 38% of India’s annual remittances originate from Gulf countries.
The crisis has intensified after the Strait of Hormuz was effectively shut since February 28 following the US-Israel conflict with Iran, sending global crude oil prices surging. India’s import bill is expected to rise sharply, putting pressure on foreign exchange reserves and widening the current account deficit. It is estimated that state-run oil marketing companies face under-recoveries of Rs 2 lakh crore in Q1FY27 due to indirect government control over retail prices.
According to various estimates, India’s CAD could widen to over 2% of GDP in FY27 from about 0.8% in FY26. Reflecting the external pressures, the rupee touched a record low of 95.6 against the US dollar on Tuesday.
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Nageswaran, however, maintained that India’s fiscal consolidation path, infrastructure push and reform trajectory provide a credible foundation to manage the crisis. At the same time, he cautioned that the world economy has entered a phase of “geoeconomic fragmentation”, marked by trade wars, technology bifurcation, export controls and permanently elevated geopolitical risks.
“India, given its scale, democratic legitimacy and the breadth of relationships, is better placed than most to help shape what comes next,” he said.
The CEA also urged large companies to ensure timely payments to micro, small and medium enterprises (MSMEs), arguing that delayed payments increase working capital stress and borrowing costs for smaller firms.
“Micro, small and medium enterprises are the source of working capital for large enterprises. It should be the reverse,” he said, adding that faster payment cycles would support innovation and help MSMEs integrate more effectively into global value chains.
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