Will West Asia war lead to recession? Arvind Subramanian decodes economic scenarios

Former Chief Economic Advisor Dr Arvind Subramanian warns that India faces a stagflationary shock due to the US-Iran war and the disruption of the Strait of Hormuz. In an interview with India Today, he states that ‘on certain reasonable assumptions, our GDP growth is shaved by more than one percentage point, maybe more,’ with inflation potentially rising by one to one and a half percentage points. Subramanian emphasises that it is ‘as much natural gas and fertiliser’ as oil that will determine India’s economic impact. He notes that restaurants are already closing down due to natural gas shortages, with ‘the stagnation part already being felt’. The economist explains that global policymakers have ‘less policy firepower’ due to high debt levels. He criticises India’s pre-war currency performance, noting the rupee was ‘the worst performing currency in the one year before the war began’. Subramanian calls for India to secure supplies of fertiliser, oil and natural gas globally, build commodity stockpiles, and reduce long-term dependence on fossil fuels through renewable energy investments.

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