Widening Trade Deficit with Russia

For years, India had been maintaining the largest trade deficit with China, followed by the Middle East. But the geopolitical shifts in 2022 changed everything. Russia was not even in the top 10 countries with which India had a trade deficit. But since 2022, India has witnessed a historic and asymmetric expansion of its trade deficit with Russia, making Russia one of its most important trading partners. Before 2022, India’s trade deficit with Russia was under $5 billion, but it has now skyrocketed to a staggering $50.9 billion.

India’s rising trade deficit with Russia is widening despite the rupee-ruble payment mechanisms between the two countries with the purpose of broadening the bilateral trade relationship. But the rupee-ruble payment mechanism is not working. The reasons behind this are India’s massive trade deficit with Russia, volatile exchange rate and inconvertibility of the rupee, as well as fear of sanctions from the US. These make the rupee-ruble payment mechanisms almost ineffective, and often the two countries opt for alternate currencies like UAE Dirham (AED) for bilateral trade.

West Asia Conflict is Slowing Down Indian Economy

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.

New Tariffs by Trump in the Name of Forced Labour

A person consumed by spiteful rivalry often goes to great lengths to cause trouble for their rival, even if it means suffering a loss themselves. US President Donald Trump’s behaviour mirrors this mindset; in his zeal to 'fix' other nations, he repeatedly deals blows to the American economy.

India will certainly be adversely affected by the new tariff, as will other nations. However, it is ultimately the American citizens who are paying the price for Trump's love for tariffs. By the way, President Trump has populaized tariffs in a such a that now it does feel like an economic term even for a layman!

One wonders: is this merely the US President's spiteful rivalry at play, or is he, knowingly or unknowingly, becoming a Trojan horse for America in general and the American economy in particular?

Numbers don't Always Draw the Real Picture

Core sector output climbed to a five-month high of 5% in June. That's up from 3.2% in May and 1.1 percentage points higher than a year ago. Also, GDP growth is expected to be around 6.7% in the first quarter. But one may wonder whether everything is good on the economic front?

On the construction and public-works story, cement and electricity output each rose 9.8%, and iron ore, just added to the index, jumped a staggering 43.9%. But one must remember that the activities in these sectors don’t represent broad-based industrial revival. During the same period, crude oil output fell 4.2% in June, and natural gas production dropped 7.4%. The energy sector is under huge pressure. Activities in the energy sector actually tell you whether real economic activities such as manufacturing, transport, and consumption are picking up or not.

India is Fine Tuning its Export Strategy

India's export strategy and structure have undergone a significant shift following the imposition of tariffs by the US. As a result of the strategy to diversify exports into new markets, the share of shipments to countries outside Europe and NAFTA reached approximately 59% during April–May 2026. In the same period last year, the combined share of Europe and NAFTA stood at around 46%, down from 41% now. While a 5% shift might seem modest, it is far from insignificant; it reflects India's evolving priorities.

The disparity in India's export growth across different global regions reveals the true story. Exports to NAFTA grew by only 2.6% and to Europe by 4%, whereas shipments to ASEAN surged by 66.9%, Africa by 53.1%, North-East Asia by 30.7%, and South Asia by 40.2%. Double-digit growth was also recorded in exports to Latin America and Oceania. Together, ASEAN and Africa contributed an additional $7.6 billion in exports compared to the same period last year, playing a major role in overall growth.

Protection is not Helpful for Economies

Protection may be helpful for an economy in the short tem. But in long-term or permanent protection rarely does. Gita Gopinath's observation that tariffs made Americans pay more for inferior goods reminds me of a lesson India learnt the hard way before the 1991 reforms. For nearly four decades, India followed an import substitution strategy with high average tariff rates exceeding 87% by the late 1980s. The objective was to build domestic industries. The outcome was mixed. We created an industrial base, but we also created complacency. Consumers paid high prices for products that were often technologically outdated and of lower quality (we all remember the Ambassador car and years-long waiting lists for a telephone).

Tariffs reduce competitive pressure, create deadweight losses, and encourage X-inefficiency. Firms protected from global competition have fewer incentives to innovate, improve productivity, or upgrade quality. Consumer surplus falls while producer surplus rises, but society as a whole loses. That is exactly why India's manufacturing productivity accelerated only after the 1991 reforms, when tariffs were sharply reduced and competition increased.

India is Decreasing the Share of US Dollar in Its Treasury Holdings

The US dollar's share in India's treasury holdings had been steadily increasing till mid-2024. However, since the US imposed tariffs on India, India has been steadily reducing the share of the US dollar in its treasury holdings and increasing the share of precious metals instead in its holdings. The share of the US dollar in India's treasury holdings is now at its lowest level in the last six years. It was at $241 billion in October 2024, which fell to $190 billion in October 2025. By April 2026, the US dollar’s share in Indian treasury further fell to $181 billion.

This trend has gained momentum not only in India but globally. After the US imposed tariffs on its trade partners, countries around the world are seeking to reduce their dependence on the dollar. While it is true that there is currently no alternative to the US dollar, the world is looking for alternatives. This is why the share of local currencies in global bilateral trade is gradually increasing.

Restoration of Commercial LPG Supply is a Good News for Indian Economy

The government has resumed the supply of commercial LPG. This is positive news for the economy as well as the energy sector. Since the conflict between the US and Iran, and blockade of the Hormuz had completely shattered the energy supply chains for India. Many energy-importing economies, including India were hit hard as the availability and prices of gas as well as petroleum products had become to volatile.

With a deal between the US and Iran, maritime traffic in the Strait of Hormuz is now normalizing benefiting India to huge extent. This is expected to result in gas supplies gradually restoring to the normalcy. So this decision is not only the first step toward the normalization of the energy market will improve the availability of essential fuel for industries, commercial establishments, and the service sector, thereby supporting production and business activities.

It will take time before the prices of commercial gas starts easing if global supply conditions improves. So it will be premature commenting on significnat drop in the prices of the gas. Because the war between the US and Iran has resulted into huge structual challeneges with destruction and damages to the capacity of gas plants in the Middle East. So the capacity constraints and long-term supply contracts already locked in will continues to exert pressure on the prices. So, the gas supply will improve gradually.

Where is the Indian Rupee Moving?

Many are wondering, where is the Indian rupee moving?

The Indian rupee depreciated about 9% in the last one year. But post the US-Iran peace deal announcement, it has recovered about 1.5% in a matter of a few days!

So many are wondering, why has the rupee recovered?

Considering the inflation differential between economies, historical norms, Nominal Effective Exchange Rate (NEER), and Real Effectively Exchange Rate (REER), the Indian rupee is highly undervalued by 6-7% relative to its current market value.

REER is about 88 and NEER is 91 in the month of May 2026. These two values clearly indicate that the rupee is undervalued. Any value below 100 is considered as undervalued.

This undervaluation is not being caused by macroeconomic fundamentals. But it stems from the risk-off sentiments and equity market outflows. This is driving the rupee’s nominal spot rate down.

Should RBI Allow the State Bank's Plan to Securitize its Home Loan Portfolio?

Is history poised to repeat itself?

SBI's plan to securitise a portion of its home loan portfolio suggests exactly that, evoking memories of the 2008 global financial crisis.

State Bank of India (SBI) is the largest bank in India. Its practices and actions in the market go on to impact the entire Indian banking sector.

State Bank is planning to securitise a portion of its ₹10 trillion home loan portfolio. It must be noted that deposits are slowing in India, and Indian banks are struggling to mobilise enough deposits to match the demand for loans due to low interest rates. SBI is not an exception to it. So SBI, with the purpose of diversifying its funding sources, is considering raising funds by securitising its home loan portfolio by issuing mortgage-backed securities to institutional investors. This plan aims to boost liquidity and expand its lending capacity.

This move of SBI revives the memories of the 2008 global financial crisis originating in the USA. American banks aggressively securitised subprime mortgage contracts and sold them to investors worldwide. This became one of the most profitable businesses, which led to excessive risk-taking, weak underwriting standards and complex financial products. Once the supply overpowered the demand, it resulted in widespread defaults across the US, which eventually led to the collapse of major financial institutions such as Lehman Brothers, Washington Mutual and AIG. Then a severe global recession followed.

Will RBI have to increase interest rates in India?

The Bank of Japan is set to increase interest rates to the highest level since 1995. The Federal Reserve of the US is also contemplating the idea of increasing rates, as it is difficult for the Fed to tame inflation below 2%. The European Central Bank has already increased the interest rate by 25 basis points from 2% to 2.25%. Other developed economies are expected to follow sooner or later.

India is already in a difficult position with spiralling inflation due to increased fuel prices, falling rupee, widening current account deficit and falling forex reserve. Monsoon is also expected to remain weaker this year. A weak monsoon will negatively affect the hydropower generation as well as farm earnings, adding to the problems for India.

Despite a possible US-Iran peace deal this week, the uncertainties still loom larger over the opening of the Strait of Hormuz. Rising interest rates in Japan, the US, the EU and other developed economies are a cause of concern for India. This will lead to flight of capital from Indian markets, resulting in increased pressure on the Indian rupee as well as the equity market in India.

Impact of the Austerity Appeal by the Indian Prime Minister on the Indian Economy

The rupee has witnessed a free fall of about 6% in the last five months. Both the WPI and CPI are showing an upward trend! Gold and fuel prices are expected to remain high for import-dependent India. It simply means that India is forced to import inflation. If India continues to behave as earlier, India is on the verge of an era of high inflation! All this is happening not due to internal economic problems but uncertainties about the global fuel prices, Hormuz blockade and possible economic slowdown in the world economy, along with the fear relating to Ebola!

In this hour of economic challenge, India needs some necessary shock absorbers. The seven austerity appeals by Prime Minister Narendra Modi, announced amid the West Asia conflict, are expected to act as a necessary shock absorber for the Indian economy but only if citizens treat it as a voluntary fiscal pact, not a moral lecture. The critics are calling the Prime Minister’s appeal for austerity an indicator of possible economic slowdown. But it must be clear that it's not a crisis time; so this isn’t panic. Rather, it is a strategic restraint.

India's Economic Outlook 2026: Trade Growth vs. Global Energy Shocks

Iran and the United States have likely reached a temporary peace agreement. However, it remains uncertain just how temporary or permanent this agreement will prove to be. Nevertheless, it can be viewed as a temporarily positive development for the world economy!

Even if this conflict permanently ends right now, it would continue to have detrimental repercussions for India for a considerable period. This conflict has negatively impacted the oil fields of all nations across the Middle East. Some oil fields have been completely or partially destroyed, while entire inland transportation networks have collapsed. Restoring the entire system and returning to normalcy is expected to take months if not years.

It will take several months for elevated oil prices to revert to their previous levels (however, it depends on oil producing nations). This will not be possible until the oil fields of all Middle Eastern nations resume operating at their full capacity.

The 2026 Hormuz Crisis: India's Economic 'Double Squeeze'

The Indian economy in early 2026 is going through a period of resilient growth despite significant geopolitical instability in West Asia. Hence, the Reserve Bank of India has maintained a neutral policy stance with interest rates held at 5.25%, balancing a favourable domestic inflation trend against rising global risks like surging oil and fertiliser costs.

Agricultural prospects remain strong due to high reservoir levels and a good Rabi harvest. However, the central bank may eventually need to hike rates to protect the free-fall in the rupee as well as a possible rise in inflation caused by the global energy crisis. Also India is experiencing fall in its imports to the Middle East.

Indian exports post-Trump's tariff have taken another hit. India’s West Asia exports have been affected due to rising export costs as well as disruption in the region due to war between Iran-Israel-US.

Crisis at the Strait: The 2026 Energy Shock & Economic Fallout

The war between Iran, Israel, and the United States is becoming a global catastrophe. The conflict has triggered a massive global energy crisis following the blockade of the Strait of Hormuz, causing crude oil and natural gas prices to skyrocket. If the war doesn't reach an conclusion soon, crude oil prices may touch the level of $150/barrel.

Beyond fuel shortages, there is a risk of a systemic economic collapse affecting international aviation, global food security, and financial markets. One of the largest economies like India and Europe are particularly vulnerable to the oil shock resulting inflationary pressures and potential recessions if not managed properly.

This war will not only affect economic growth but cause long-term socioeconomic shifts, including a permanent exodus of expatriates from the Persian Gulf, and a large number of people across the globe falling into a vicious cycle of poverty and hunger.

India's Economic Double Whammy: Navigating the Oil and Currency Crisis

India is facing economic challenges, primarily driven by soaring global energy prices and a historic depreciation of the rupee. Geopolitical conflicts in West Asia have disrupted oil supplies, causing a "double whammy" that threatens to widen the trade deficit and push inflation beyond the Reserve Bank of India's target of 4% (plus-minus 2%).

GDP growth is expected to be lower than earlier forecasted, while the Reserve Bank of India (RBI) is intervening in currency markets to stabilize the exchange rate.

India's double side problems; one with rising oil price and the second one with depreciating rupee; are cause of concern for India. To mitigate these risks and bypass dollar-based sanctions, India is increasingly exploring "petro-rupee" arrangements and settling oil trades in alternative currencies like the Chinese Yuan or Dirham.

The 2026 Hormuz Crisis: India's Economic Double Squeeze

The Indian economy, indeed the beacon of strength and resilience, is indeed moving along the path of strong growth, while the geopolitical storm continues to brew in the West Asia. This phase is characterized by the subtle interplay between positive internal factors and negative external factors.

The Reserve Bank of India (RBI), a prudent regulator, has prudently maintained its neutral stance by keeping the interest rate unchanged at 5.25%. This is because the RBI, while recognizing the positive Indian inflationary scenario, which comfortably settled within the 4% +/- 2% band in Q4 2025, driven largely by the supply-side management and the moderation in food inflation, is also being cautious in the face of the ominous external scenario. The increase in oil prices (Brent Crude), now trading around $101 per barrel, and the rise in fertilizer prices, driven largely by the West Asian scenario, are indeed the inflationary challenges that the RBI is monitoring.

Going deeper, the agricultural sector continues to be a strong pillar, as the strong monsoon received during the year has ensured reservoir levels are currently at 105% of the 10-year average, which will ensure adequate water supplies for the upcoming Kharif crop, in addition to the strong Rabi crop received during the year. Yet, the elephant in the room continues to be the capital outflow story, which would become a reality if the global interest rates continue to inch upwards or if the geopolitical situation becomes more unstable, which would lead to a further weakening of the rupee. While the RBI reserves are currently healthy at about $700 billion, the free fall of the rupee would inevitably lead to imported inflation, which would force the RBI to eventually raise rates, perhaps in a pre-emptive action, to ensure the stability of the rupee as well.

Petro-Yuan vs Dollar: Is the Oil Market About to Change Forever?

80% of the world’s oil runs on the Dollar… but what if that suddenly changes?

Is the US Dollar losing its grip on global oil trade? 🌍💰

For decades, the Petrodollar system has dominated the global economy, with nearly 80% of oil transactions conducted in USD. But a quiet shift is underway…

Countries like China, Russia, Iran, UAE, and even Saudi Arabia are exploring alternative currencies like the Chinese Yuan, Euro, Yen, and Rupee for oil trade. 📉

The Yuan’s global trade share is rising, and discussions around the “Petro-Yuan” are gaining momentum—especially amid geopolitical tensions like the Iran-Israel conflict.

But can the Yuan really replace the Dollar?

Despite growing adoption, the Yuan still faces major hurdles: Capital controls
Limited liquidity
Lower financial market depth

Meanwhile, the Dollar still dominates: ~40% of global trade

India’s Oil Strategy Just Flipped 2004 vs 2026

What if I tell you that India’s biggest oil supplier today was almost irrelevant just 5 years ago?

Back in 2004, India’s oil imports were heavily dominated by the Middle East. Twenty years later, that basket has transformed into a globally diversified mix, with Russia, Iraq, and even the US now major players.

This isn’t just about who supplies India oil it’s about energy security, trade costs, and inflation.

In 2004, India’s crude imports were almost entirely from West Asia Saudi Arabia, Iran, Iraq, UAE dominating the share.

By 2026, India is importing about 5 million barrels per day, with Russia alone supplying 38%, Iraq around 12%, Saudi Arabia 10%, UAE 8%, and the US about 7%. This is a textbook shift from single‑region dependence to a multi‑source, globally diversified basket.
From an economics lens, this diversification is about risk‑return trade‑offs and supply‑elasticity.

Dependence on one region created high geopolitical risk any conflict or sanction could shift the supply curve left, pushing prices up in India’s inelastic oil market.

Modi Government Slashes Excise Duties on Petrol and Diesel

Amidst rising prices in the international market, the UPA's Manmohan government issued oil bonds worth approximately ₹1.5 lakh crore to provide affordable fuel to consumers. This measure ensured that, during a period of high inflation, the common citizen would not have to directly bear the burden of increased oil prices. This decision also served a secondary objective: it ensured that the government which had already become unpopular due to various scandals would not have to face further political difficulties. In essence, the Manmohan government chose to shift the burden onto the future in order to ease the present.

To repay the very debt incurred through these oil bonds issued by the UPA government to oil companies and which had since ballooned to approximately ₹3.5 lakh crore the Modi government continued to sell fuel to the same consumers at elevated prices for nearly seven to eight consecutive years, even when international oil prices had declined. The Modi government faced significant criticism for this approach. Prime Minister Narendra Modi himself faced personal allegations of favoring oil companies.

Be that as it may.