Chief Economic Advisor V Anantha Nageswaran on Saturday said India must create strategic buffers to deal with what he described as the “most difficult” energy shock facing the country due to the ongoing West Asia crisis.
Speaking at the ICPP Growth Conference organised by Ashoka University, Nageswaran said rising global prices of crude oil and fertilisers could make it harder for the government to meet its fiscal deficit target of 4.3 per cent for the current financial year.
He also warned that below-normal monsoon conditions and the pass-through of higher energy prices could lead to a potential spike in inflation.
“The priority for us is to create strategic buffers. This energy shock is the most difficult one compared to any other previous energy shock,” Nageswaran said.
He added that India should also examine vulnerabilities linked to import dependence on minerals such as nickel, tin, and copper.
Since the beginning of the West Asia conflict on February 28, crude oil prices have risen sharply, reaching a four-year high of $126 per barrel on Thursday compared to around $73 before the conflict began.
Nageswaran said the current account deficit could rise to over 2 per cent of GDP this fiscal year, up from less than 1 per cent in FY26.
He said the conflict presents four channels of economic shock for India: price and supply shocks, trade disruption, high logistics costs, and remittance risks.
According to Nageswaran, the crisis is currently more of a price shock than a supply shock for India because the government is managing supplies effectively.
India imports around 60 per cent of its LPG requirement, with nearly 90 per cent of those supplies passing through the Strait of Hormuz, which is now closed.
Nageswaran said the government is attempting to balance the burden of rising fuel costs between fiscal policy, inflation management, households, and oil marketing companies.
He also pointed to challenges posed by artificial intelligence, saying India’s IT sector must become more competitive and create jobs that use AI instead of losing employment opportunities to the technology.