Indian economy is showing resilience and is expected to grow at 6.7%, but the ride is expected to be bumpy. It is caught in a problem for which it has no solution on its own. It is completely dependent on other parties.
The conflict in West Asia between the US and Iran has proved a double-edged sword for India. It is hurting India from two sides. India is facing energy challenges in terms of limited access to energy sources as well as high prices on one hand, which is turning the mathematics against the Indian economy as it induces inflation in the economy and increases current account deficit and rupee volatility. This is hurting demand in the economy. On the other hand, India's $50 billion in exports to the Middle East have almost come to a halt. This is pausing economic activities in India. Firms exporting to the Middle East are forced to pile up inventories as these firms are unable to ship their final products to their buyers despite long-term contracts. Their export consignments are caught and hanging in the balance in the firing zone between the US and Iran. This is resulting in slow manufacturing activities and lower labour demand. This has started the vicious circle.
Not only this, the US keeps on increasing the pain for the Indian economy. The US has been imposing tariff after tariff since last year, making things difficult for India. These factors altogether are affecting economic activities negatively in India. As a natural result, private sector growth as well as services PMI is slowing down.
India is continuously diversifying its export market, but pain arising from the US tariffs will keep lingering for longer than our expectations. There are three things that India has to do. One, it further increases domestic demand by investing more in the economy. Expansion is the key. Second, India secures other sources of oil and gas while increasing investment in research and development of alternative and cleaner energy sources for India. Third, India needs to invest more aggressively in green energy such as solar and wind energy.
As a whole, self-sufficiency is the only way out for India to become Viksit Bharat.
The conflict in West Asia between the US and Iran has proved a double-edged sword for India. It is hurting India from two sides. India is facing energy challenges in terms of limited access to energy sources as well as high prices on one hand, which is turning the mathematics against the Indian economy as it induces inflation in the economy and increases current account deficit and rupee volatility. This is hurting demand in the economy. On the other hand, India's $50 billion in exports to the Middle East have almost come to a halt. This is pausing economic activities in India. Firms exporting to the Middle East are forced to pile up inventories as these firms are unable to ship their final products to their buyers despite long-term contracts. Their export consignments are caught and hanging in the balance in the firing zone between the US and Iran. This is resulting in slow manufacturing activities and lower labour demand. This has started the vicious circle.
Not only this, the US keeps on increasing the pain for the Indian economy. The US has been imposing tariff after tariff since last year, making things difficult for India. These factors altogether are affecting economic activities negatively in India. As a natural result, private sector growth as well as services PMI is slowing down.
India is continuously diversifying its export market, but pain arising from the US tariffs will keep lingering for longer than our expectations. There are three things that India has to do. One, it further increases domestic demand by investing more in the economy. Expansion is the key. Second, India secures other sources of oil and gas while increasing investment in research and development of alternative and cleaner energy sources for India. Third, India needs to invest more aggressively in green energy such as solar and wind energy.
As a whole, self-sufficiency is the only way out for India to become Viksit Bharat.
Rajeev Upadhyay
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