Director Desk

*This article draws upon information sourced from the minutes of the RBI’s MPC meeting. The 56th meeting of the RBI’s Monetary Policy Committee (MPC), convened between August 4 and 6, 2025, unfolded against a backdrop of paradoxical certainties and persisting ambiguities. On one hand, the Indian economy finds itself buttressed by benign inflation and resilient rural consumption and on the other, storm clouds in the form of tariff disputes, fickle global demand and subdued private investment continue to cast shadows on the horizon. In this delicate context, the MPC’s unanimous decision to maintain the policy repo rate at 5.5%, with a neutral stance, represents a judicious pause, borne out of  policy circumspection. At first glance, the inflation trajectory appears to be cause for sanguinity. Headline consumer price inflation plummeted to a 77-month low of 2.1% in June, driven primarily by an unprecedented contraction in food prices. Indeed, food inflation turned negative for the first time since 2019, owing to a felicitous monsoon, replenished reservoirs and effective supply-side interventions. Such a precipitous decline has conferred the central bank with a rare policy space, rendering inflation temporarily well below the 4% target. Yet, herein lies the rub – this benevolence of numbers is anchored in volatile components. Core inflation, stubbornly orbiting the 4% mark and nudging higher on the back of precious metal prices, bespeaks underlying demand pressures that cannot be lightly dismissed. The MPC was acutely conscious that the transience of food-price deflation could well give way to a resurgence above target by the final quarter of FY2025-26, with projections peaking near 4.9% in early FY2026-27. Growth dynamics, meanwhile, reflect a similarly Janus-faced reality. Rural consumption, invigorated by agricultural buoyancy and rising wages, continues to prop up aggregate demand. Public capex and government infrastructure spending remain muscular, while services and construction exhibit commendable vigour. Here, the industrial sector tells a more sobering tale; uneven performance across segments, waning electricity and mining output and an unfulfilled promise of private investment. Credit offtake, despite a cumulative 100 bps reduction in policy rates since February, remains tepid, suggesting that the transmission mechanism, albeit accelerated, is yet to fully fructify. In other words, liquidity abounds, but risk appetite remains constrained by uncertainties emanating from geopolitical and tariff  dynamics. Indeed, it is the global theatre that imbues the domestic scene with added complexity. Trade negotiations with the United States, in particular, have turned acrimonious, with new tariffs threatening labour-intensive export sectors such as textiles, jewellery as well as fisheries. While the signing of the UK-India FTA offers a glimmer of reassurance, the spectre of protectionism looms large, unsettling investor sentiment and casting doubt over external demand. In such circumstances, further monetary loosening could risk squandering policy ammunition prematurely, particularly when fiscal impulses and prior rate cuts are still percolating through the economy. The unanimity of the MPC’s vote, across members of divergent ideological proclivities, signals a convergence of prudence. To cut rates further in the light of benign inflation, would have been to gamble on ephemeral food price moderation; to tighten would have been to strangle an incipient recovery in private investment. The middle path, thus, is retaining the repo rate and a neutral stance, which shall embody an equilibrium between caution and optimism, vigilance and patience. For investors, the pause signals stability in the cost of capital and an environment conducive to long-term portfolio planning, though not yet a licence for exuberant risk-taking. For government policymakers, the decision subtly shifts the onus towards fiscal stimulus and structural reforms, particularly those capable of galvanising private investment in an otherwise hesitant industrial sector. For industry, meanwhile, the unmistakable message is to harness prevailing liquidity and expand capacities proactively, rather than awaiting further monetary easing, in order to fortify themselves against looming global headwinds.

The trajectory of the India-US ‘mini trade deal’ under President Donald Trump’s second tenure demonstrates India’s strategic acumen in the face of aggressive tariff diplomacy. Union Commerce and Industry Minister Piyush Goyal, steering New Delhi’s posture, has ensured that Indian national interest remains impervious to Washington’s blitz of deadlines, thereby positioning himself as a negotiator the US cannot easily bypass. In February 2025, PM Modi’s Oval Office conclave with President Trump set an ambitious target – doubling bilateral trade to $500 billion by 2030. Reciprocally, Trump issued a sweeping 27% tariff on Indian exports – cognisant that India’s average applied tariff stood at 12 %, versus the US’s 2.2 % – thereby reiterating his ‘America First’  posture. Goyal responded not with panic, but with composure; India will “never make a trade deal based on a deadline or time frame” he affirmed, insisting that “national interest will always remain supreme”. Union Minister Goyal’s strategic playbook is clear: concede tactically on select industrial goods, such as auto components, petrochemicals, electric vehicles (EVs), and tree nuts, while resolutely defending agriculture, dairying, wheat, and genetically modified (GM) crops, central to rural livelihoods. This calibrated stance has compelled President Trump to extend the deadline, first from July 9 to August 1, and refrain from dispatching the dreaded tariff notification letter to India. While reciprocal tariffs pose risks to agricultural exports, India can offset losses through targeted tariff-phase reductions and investment in productivity. Also, India retains export growth potential despite looming tariffs, especially in pharmaceuticals, chemicals, apparel, and AYUSH sectors. India’s negotiating nerve is reinforced by its readiness to invoke WTO recourse, having issued retaliation notices on autos, steel, and aluminium, as well as to insist on preferential access for labour‑intensive Indian products such as textiles, gems, leather and shrimp. Washington’s willingness to enter an ‘early‑harvest’ deal on tariffs, while deferring sensitive issues for later tranches, speaks volumes about New Delhi’s effective brinkmanship. Yet Union Minister Goyal’s triumph is not merely defensive. He has subtly flipped the script: by plugging leaks in American supply chains, particularly where China or Vietnam falter, India stands to gain market share. India could emerge as a beneficiary of US tariff realignments, gaining competitive advantage over China, Vietnam and/or Mexico. Nevertheless, this ‘mini’ deal is not a panacea. India must be cautious that rushing into an agreement under duress risks imperilling vulnerable domestic sectors. Trump’s tariff apparatus remains unpredictable, one tweet away from reversing gains. Goyal seems well aware; India must continue to fortify its agricultural foundations and expand trade diplomacy beyond bilateral band‑aids. To sum up, Minister Goyal is emerging not just as an interlocutor, but as an anchor of sovereign trade strategy. By balancing concession with conviction, he has compelled Washington to recalibrate its approach, steering a potentially coercive tariff gambit to India’s strategic advantage. In India’s lexicon of diplomacy, this is not capitulation, it is pretty much calculated sovereignty.

In the turbulent days post the Pahalgam bloodbath, as tensions surged between India and Pakistan – culminating in the high-stakes military episode ominously christened Operation Sindoor – the spectre of a full-scale war loomed menacingly over the subcontinent. Though a precarious cessation of  fire has since prevailed, the world remains haunted by a fundamental question: What might have transpired economically had the confrontation escalated into open warfare between two nuclear-armed neighbours with vastly asymmetrical economic profiles? This analytical exposition probes that hypothetical scenario, examining the potential fallout for the Indian and Pakistani economies, regional stakeholders across South Asia, and major global powers whose trade arteries crisscross the Bay of Bengal, Arabian Sea, and Indian Ocean. As of Q1 2025, India’s economic fortitude is manifest in its $4.19 trillion GDP and a commendable Real GDP growth rate of 6.2%. The Indian economy, marked by fiscal resilience and diversification, from services to pharmaceuticals and digital exports, would still, however, be far from immune to the fiscal reverberations of warfare. On the other side of the Radcliffe Line, Pakistan’s economy remains comparatively enfeebled, with a corresponding GDP hovering at $373.08 billion and a growth rate of merely 2.6%, grappling with mounting inflation, sovereign debt vulnerabilities, and a fragile external balance. In the event of an escalated conflict, preliminary estimates suggest that both nations could haemorrhage up to $18 billion daily, arising from infrastructural devastation, disrupted trade, and financial panic. A hypothetical 30-day war would thus translate into an astronomical loss exceeding $500 billion – an economic cataclysm that neither state can afford without imperilling its developmental trajectory. Moreover, currency markets would be quick to react. The Indian rupee, for instance, had already registered its most precipitous fall in over two years amid the initial skirmishes in May 2025, with financial markets recoiling in tandem (Kalra, 2025). Capital flight, downgrades by credit rating agencies, and plunging stock indices would likely follow in quick succession. Defence spending, already bloated in peacetime, would spiral to unsustainable proportions. India’s 2025-26 defence budget stands at a hefty ₹6.81 lakh crore  ($80 billion), marking a 9.53% year-on-year increase. Pakistan’s corresponding outlay, estimated at $10 billion, constitutes an even more disproportionate burden relative to its GDP. A war-induced surge in defence allocations would cannibalise public spending in education, health, and rural development, imperiling the UN SDGs and social welfare metrics in both countries. Yet, the implications of such a conflict would not be confined to the immediate belligerents. The ripples of the war tide would echo across the Indian subcontinent, especially in Bangladesh, Nepal, Bhutan, and Sri Lanka, whose economies are tightly interwoven with regional trade and Indian logistics. Any prolonged disruption in Indian land and maritime connectivity could devastate smaller economies that depend heavily on Indian ports, roadways, and cross-border supply chains. Furthermore, the peril of mass displacement and refugee crises, particularly along India’s Rajasthan and Punjab borders, could place humanitarian and fiscal burdens on neighbouring states. On a broader geoeconomic canvas, the ramifications for global trade, particularly for nations like the United States, China, Japan, and European Union member states, would be deeply unsettling. The Arabian Sea, Bay of Bengal, and Indian Ocean are not mere regional waters; they are the capillaries of global commerce. Approximately 95% of India’s trade by volume and nearly 68% by value flows through these maritime routes. The dependence is no less significant for China, whose trade with Africa, Europe, and the Middle East traverses these very waters – accounting for over 95% of its westward commercial traffic. Moreover, over 80% of global maritime oil trade passes through the Indian Ocean region (IOR), amplifying the strategic centrality of this corridor. In the event of a war, shipping insurance premiums would skyrocket. Rerouting vessels to circumvent conflict zones would increase transit times and costs, disrupting everything from container traffic to crude oil shipments. Delays in global supply chains, which are already brittle from post-COVID recalibrations, would likely exacerbate inflation in key commodity markets, impacting nations far removed from South Asia. The Suez Canal and Strait of Malacca, already chokepoints of strategic anxiety, would face compounding pressure. Ergo, while the immediate dangers of a nuclear-armed confrontation are manifestly military in nature, the collateral damage would be unequivocally economic and indiscriminately global. The hypothetical conflagration between India and Pakistan would not merely stall their national aspirations but destabilise the entire Indo-Pacific economic order. It is a cautionary tale for realpolitik: in an era of interdependence, even ostensibly ‘regional’ wars possess the gravitational force to deform the global economy.

India stands at a pivotal juncture in global trade, with the pressing need to navigate a protectionist world. Free Trade Agreements (FTAs) have long been a cornerstone of our foreign economic policy, offering potential benefits in enhancing trade volume, boosting industrial output, and generating employment. However, with each partnership comes a set of challenges. In 2025, as India negotiates or revisits its FTAs with the US, EU, New Zealand, and Mercosur, the stakes are high, both in terms of economic gains and potential trade-offs.  The US remains India’s largest trading partner, with bilateral trade crossing $119.7 billion in 2023-24. The potential FTA with the US aims to further reduce tariffs, expand market access, and streamline regulations. Sectors like IT, pharmaceuticals, and textiles stand to gain significantly, as reduced duties will enhance the competitiveness of Indian exports. However, the US is expected to push for stronger intellectual property (IP) protections, which could affect India’s pharmaceutical sector, particularly its generic drug industry, valued at $50 billion. The US demands for tariff cuts on automobiles (currently exceeding 100% duty) threaten India’s $21.2 billion (in FY24) domestic auto industry. Without this FTA, India risks losing competitiveness to rivals like Vietnam, especially amid Trump’s 25% tariff threats.  The US may also demand greater market access for agricultural products (mainly corn, cotton and soyabean), a sensitive area for India. The key to a successful FTA will be balancing these competing interests while leveraging India’s strengths in technology and services. India’s negotiations with the European Union (EU)  are particularly significant in 2025. During 2023-24, bilateral trade in goods between India and theEU reached an impressive $137.41 billion, with Indian exports to the EU amounting to $76 billion and imports from the EU standing at over $61 billion, firmly establishing the EU as India’s largest trading partner in goods. The bilateral trade in services in 2023 achieved a record high of $51 billion. This marks an unprecedented milestone in the trade of services between the two economies. Major exports from India include textiles, machinery and chemical products. An FTA could lead to substantial tariff reductions, particularly for Indian textiles and leather, where current EU tariffs range between 12-16%. On the downside, the EU is likely to push for stricter labour and environmental standards, which could increase compliance costs for Indian manufacturers. The EU’s Carbon Border Adjustment Mechanism (CBAM) could impose 20-35% tariffs on India’s $6.64 billion steel and aluminum exports, risking around $1.5-$2 billion in annual loss unless mitigated through FTA concessions. Failure to secure this deal could cede ground to China’s growing EU trade footprint. Another area of concern is the EU’s demand for easier access to India’s services market, especially in sectors like insurance and finance. While such an agreement could attract EU investments, it also opens India to increased competition from European service providers, potentially impacting domestic businesses. India’s trade relationship with New Zealand is smaller compared to other partners, with bilateral trade hovering under $2 billion in 2024. The FTA with New Zealand is expected to focus on niche sectors such as dairy, wool, and technology. New Zealand is keen on greater access to India’s dairy market, valued at over $135 billion, which is a politically sensitive issue in India. An influx of New Zealand dairy products could hurt domestic producers, particularly in regions like Gujarat and Punjab. On the other hand, India could benefit from New Zealand’s expertise in agricultural technology and sustainable farming practices, crucial for India’s food security and sustainability goals. The challenge for India will be in negotiating provisions that safeguard local interests while tapping into New Zealand’s advanced technology sectors. Mercosur, the South American trade bloc comprising Brazil, Argentina, Paraguay, and Uruguay, represents a new frontier for India. Mercosur signed a landmark FTA with the EU in December 2024, spotlighting India’s lagging Preferential Trade Agreement (PTA) from 2009.  Bilateral trade with Mercosur amounted to $16.59 billion in FY24, with major Indian exports including automobiles, pharmaceuticals, and chemicals. An FTA could help India expand its market share in the region, especially in sectors like automobiles, where India is a global leader. However, Mercosur countries are likely to demand greater access to India’s agricultural markets, particularly for soyabean, sugar, and meat products. This could create tension within India’s agricultural sector, which is already grappling with issues related to farm incomes and sustainability. Moreover, the distance between India and Mercosur adds logistical challenges, potentially increasing transportation costs and affecting the competitiveness of Indian exports. India’s FTAs with the US, EU, New Zealand, and Mercosur hold immense potential for boosting trade and investment. However, the benefits must be carefully weighed against the challenges. With each partner, India will have to navigate sensitive sectors like agriculture and pharmaceuticals while ensuring that its domestic industries remain competitive. The success of these FTAs will depend on India’s ability to negotiate balanced agreements that protect key domestic interests while opening up new avenues for growth. A well-structured approach could unlock billions in trade opportunities, but missteps could lead to disruptions in key sectors, making it crucial for India to tread cautiously.

The reascension of President Donald Trump to the helm of the United States has precipitated a series of economic reverberations, notably impacting India’s financial markets. The imposition of tariffs and the promulgation of protectionist trade policies have engendered a palpable sense of trepidation among investors, culminating in discernible fluctuations within the Indian stock market. In a recent sequence of trading sessions, India’s benchmark indices have exhibited a downward trajectory. The Nifty 50 index experienced a decrement of 0.12%, concluding at 23,045.25, while the BSE Sensex witnessed a decline of 0.16%, settling at 76,171.08. This downturn signifies an aggregate diminution of approximately 3% over a span of six sessions.  Not to forget, the aggregate market capitalisation of companies listed on the Bombay Stock Exchange (BSE) contracted by a staggering ₹9.3 lakh crore, settling in at ₹408.52 lakh crore. Concurrently, small-cap stocks have approached bear market territory, descending 21.4% below their historical zeniths, and the mid-cap index has retracted by 17% from its apex. These perturbations are largely attributable to apprehensions surrounding U.S. tariffs imposed on India and substantial divestments by foreign investors.  The promulgation of tariffs by the U.S. administration has ostensibly catalysed an exodus of Foreign Institutional Investors (FIIs) from the Indian markets. Factors such as a fortifying U.S. dollar, elevated U.S. bond yields, and the overarching ‘America First’ doctrine have collectively impelled FIIs to reallocate their capital. This capital flight has exerted downward pressure on Indian equities, further compounding the prevailing market downturn. The ramifications of President Trump’s policies manifest heterogeneously across various sectors of the Indian economy. The IT and Pharmaceutical sectors, with a substantial reliance on exports to the U.S., confront potential adversities stemming from heightened tariffs and stringent immigration policies. The imposition of elevated tariffs could erode the competitive pricing advantage of Indian IT and pharmaceutical firms in the U.S. market. Moreover, restrictive immigration reforms may impede the mobility of skilled professionals, thereby inflating operational costs for IT enterprises. The U.S. administration’s inclination towards fossil fuels, coupled with prospective tariffs on wind turbines and solar panels, poses hurdles for India’s rising renewable energy sector. Indian companies engaged in green energy initiatives may encounter escalated costs for technology and raw material imports, potentially stymieing the momentum of sustainable energy projects. The imposition of a 25% tariff on steel and aluminum imports by the U.S. has precipitated a 3% decline in India’s metals index. Prominent entities such as Tata Steel and JSW Steel have borne the brunt of this policy, registering significant stock devaluations. Amidst the prevailing economic uncertainties, India’s retail inflation has exhibited a decrement, descending to 4.31%. This development offers a modicum of respite, potentially augmenting consumer purchasing power and creating economic stability. Nevertheless, the overarching apprehensions pertaining to U.S. trade policies continue to cast a shadow over the economic outlook. In response to these multifaceted challenges, it is imperative for India to recalibrate its economic and diplomatic strategies. PM Modi’s just commenced engagements in the US, particularly with President Trump presents a timely opportunity to negotiate trade terms, mitigate tariff-related adversities, and fortify bilateral economic ties. Also, diversifying export markets beyond the U.S. and reinforcing domestic consumption could serve as viable avenues to insulate the Indian economy from external shocks. The resurgence of President Trump’s administration heralds a complex interplay of challenges and opportunities for India’s stock market. A nuanced understanding of these dynamics, coupled with agile policy responses, will be instrumental in navigating the evolving economic landscape.

The Union Budget of this year has been a boon for the middle class, specially the salaried class, which felt a wee bit overlooked over the years. Despite the fact, that with about 10 million taxpayers out of a total of 30 million, getting off the tax net, shaving 1 trillion INR off the Indian exchequer’s reserve, the FM has still managed to pare the Fiscal Deficit for the coming fiscal to 4.4% from the RE for the present fiscal of around 4.8%. The basic ingredients behind this fine balancing act are a toned down Capex of Rs 11.2 Lakh crore (1% increase over last fiscal budget), albeit including Grants-in-aid to States, Rs 15 lakh crore; an estimated 14.4% rise in personal income tax from Rs 12.6 lakh crore to Rs 14.4 lakh crore, next fiscal; Corporation tax and GST growth expected to grow by 10%; growth in revenue from Dividend income and profits from PSEs from Rs 2.9 lakh crore to Rs 3.3 lakh crore in FY 25. As such, the economy is well poised on the fiscal consolidation path to keeping the target below the threshold of 4.5% of GDP, as outlined in the Budget 2021. Along with the above, the Budget enjoins the Government to seek to bring down the ‘Debt to GDP’ to about 50% by the end of FY31 (End of the 16th Finance Commission’s term) from 56.1%, projected for FY 26. By the calculations of a few economists, this would dovetail well with a Fiscal Deficit of 3 to 3.3%, coupled with a capex of 3 to 3.5% of GDP. This is the outcome of an admixture of fiscal prudence and development measures undertaken by the Government (with an added dose of infra), that would lay down the edifice of a resilient and growing economy duly buttressed by fiscal buffers, ever ready to face the global and other economic headwinds, going forward. The major takeaway for the salaried class translates to a tax free salary income of up to Rs 12.75 lakh, rebate on annual income up to Rs 12 lakh, as against the extant limit of Rs 7 lakh. As per the rejigged tax slabs, the extent of tax savings would range from Rs 30K to Rs 1.1 lakh, with the highest tax rate being applicable to income above Rs 24 lakh vis-a-vis Rs 15 lakh, at present. Government’s emphasis on revamping the sagging demand growth by strengthening the purchasing power of the middle class is amply borne out by this budget, as also keeping a hawk eye on the Indian economy’s trajectory to a ‘Viksit Bharat” by way of sumptuous allocation of funds to the major sectors like Defence (Rs 4.91 trillion), Rural Development (Rs 2.66 trillion), Agriculture & Allied activities (Rs 1.71 trillion), Education (Rs 1.28 trillion), Health (Rs 98.3 K), Urban Development (Rs 96.7 K), IT & Telecom (Rs 95.2 K), and the list goes on. The Budget FY 25 revolves around 4 major planks of development, viz., Agriculture, Investment, MSME and Exports. Taking cognizance of the dominance of AI, going forward, the Government has come out with an outlay of Rs 500 Crore on the Centres of Excellence in AI for education. Further, the Udan Scheme has been given a fillip to cover 120 new destinations; Jan Vishwas Bill would be introduced to decriminalise 100 provisions in various statutes; FDI limit for insurance increased to 100% from the extant 74%. That said, there are certain facts of concern which engages the Union Government, like a gradual economic slowdown, a markdown in the RE of many crucial economic parameters like Disinvestment, Capex, Corporation tax and Excise duties, to name a few. No wonder, the FM’s stress in the Budget on upliftment of rural economy, MSMEs, boost to investment with Private sector taking a big stride with Government creating an enabling environment and boosting exports to arrest a slide in the balance of trade. Although the Government’s efforts in keeping the overall inflation in check through fiscal and monetary measures cannot be overlooked, yet the food inflation horse needs to be reined in to preempt a gallop – hence the imminent need for that fillip to production with a matching consumer demand! The Budget 2025, therefore, amply deserves to be appreciated, for nothing less than it being a brilliant trapeze act, encapsulating courage, conviction, optimism and astuteness.

The Economic Survey of FY 25 has an underlay of AI, that poses “unprecedented opportunities and significant challenges” for the job market spanning the globe, warranting building of “robust institutions” to alleviate its deleterious impact. India, taking a cue from its past experiences with pathbreaking technological disruptions, understands the importance of robust institutions playing a key role in steering these to ensuring equitable outcomes for the economy. Substantial investments in education and skilling ring fenced by an enabling institutional ecosystem would go a long way in the vibrant workforce adapt to and adopt the new technology that has taken the world by storm. With a services-led economy, and the country boasting of its demographic advantage, the nation is quite rightly besieged by AI’s potential of upending its extant advantages by potential displacement of a massive labour force. An IIM survey exhibits a disturbing prognosis of about 40% of the surveyed employees to the effect that the human skills would be outdone by AI in the next about half a decade. A healthy and robust economic and social infrastructure would greatly contribute to a truly inclusive economic growth in the new world order. With an estimated GDP growth of 6.4% in FY 25 and within a band of 6.3-6.8% in the coming fiscal, against the backdrop of strong economic fundamentals, a robust external account and rigorous adherence to fiscal consolidation path with sustained impetus on private consumption, the GoI’s strategy would revolve around giving impetus to Industries (added push to capital goods sector) bolstered with R&D support, MSMEs, and the requisite infra push to a sustainable upward trajectory in India’s GDP path with a substantial thrust on services and industrial exports, that is a sine qua non for a ‘Viksit Bharat’ by 2047. With a positive outlook on the food inflation front, with a steady core inflation, buttressed by reduced global energy and commodity prices, India looks poised to scale the frontier, despite climate issues and geo political instability. The forex health looks sturdy enough to weather the intermittent capital flight, and can support 90% of its external debt and 10 months of imports, on account of an evolved domestic capital market and steady capital inflows. The formal sector has registered an impressive growth with EPFO subscriptions more than doubling in the 5 year time frame from 2018-19. An issue of concern, however, is the lack of correlation between growth in corporate profits and wages. While profits soared to 22% in FY 24, employment grew by a paltry 1.5%, due to a sharp focus of the corporate sector on cost-cutting through workforce layoff. This flags the issue of rising income inequality, striking at the very foundation of inclusive growth. Overall, a balanced outlook despite global challenges (geo political, commodity and energy prices and trade barriers); there is an urgent need for structural reforms, deregulation of economy, investment uptick, corporate wage growth for a buoyant consumer demand and a sustained infra push for a sustainable growth trajectory of the Indian economy.

Owing to the protracted Israel-Palestine imbroglio, India finds itself grappling with a host of economic vicissitudes, most notably the inexorable escalation in oil prices, a surge in inflationary pressures, and pronounced volatility in the stock market. These perturbations, exacerbated by an overarching atmosphere of global uncertainty, are beginning to cast long shadows over the contours of India’s financial edifice. India’s energy security remains precariously poised, heavily dependent as it is on the volatile currents of Middle Eastern oil. As of August 2024, a formidable 44.6% of India’s crude oil imports emanate from this region, rendering any disruptions in pivotal maritime corridors such as the Strait of Hormuz or the Red Sea potentially catastrophic. These choke points, which  are narrow channels along widely used global sea routes that are critical to global energy security are not merely geographical features but lifelines of global energy, facilitating the movement of over one-fifth of the world’s oil. A blockade or even the rerouting of tankers via the Cape of Good Hope would significantly elongate transit times and concomitantly escalate transportation costs. Such an upheaval portends a ballooning of India’s oil import bill, with projections for FY 2024-25 placing it between a daunting US $101 billion and US $104 billion, a marked increase from the US $96.1 billion of the preceding fiscal year​. The repercussions of these inflated crude oil prices reverberate directly through India’s inflationary landscape. This will result in substantial price rise across the board with a significant challenge for our  economy and policy makers. With oil imports constituting about 90% of the total domestic demand, with major sourcing from Saudi Arabia, Iraq, the UAE, Russia, USA and Kuwait, the domestic economy is heavily reliant on oil import for its energy requirements. The Reserve Bank of India (RBI), which had previously entertained the possibility of trimming interest rates, now faces a bleak scenario wherein spiralling fuel costs are likely to perpetuate inflationary pressures. From transportation to manufacturing, the escalating costs of fuel ripple across the economy, culminating in heightened consumer prices across an array of goods and services. The stock markets, as ever susceptible to global tremors, have not remained insulated from the escalating conflict. Not even a week ago, on October 3, 2024, the Sensex witnessed a precipitous fall of over 1,700 points, while the Nifty nosedived by 546 points, reflecting investors’ palpable anxiety over the oil-induced inflation spectre. The India VIX, colloquially dubbed the “fear index,” soared by nearly 10%, a stark manifestation of the market’s growing unease. Compounding this turmoil is the exodus of foreign capital from Indian equities, as investors pivot towards ostensibly safer havens such as bonds and gold. This exodus has disproportionately impacted sectors such as real estate, automobiles, energy, and finance, all of which have seen substantial declines across their respective indices. The maritime arteries of India’s trade, particularly through the Red Sea, are now beset by soaring insurance premiums due to the conflict-induced risks. This aggravates shipping costs and jeopardises India’s ability to efficiently export goods to key markets in Europe and North America. With approximately US $120 billion in trade traversing these waters annually, the economic consequences of such disruptions are far from trivial. To be sure, India’s foreign reserves, standing at over $700 billion – a first for the nation, provide some respite in cushioning immediate external shocks. However, should the Middle Eastern conflict persist, it threatens to sap investor confidence and, more alarmingly, derail India’s broader economic trajectory. To sum up, the unfolding Israel-Palestine war has amplified the already considerable vulnerabilities in India’s economic framework. The spectre of surging oil prices, inflationary pressures, stock market volatility, and disrupted trade routes loom large, with the magnitude of their impact hinging largely on the conflict’s duration and the ever-evolving global milieus, with a concurrent fallout on the domestic economic velocity.