Crisis/Opportunity

Iran war will probably hurt growth, but proactive policies can absorb much of its impact

India’s economy is probably not going to grow as fast in 2026 as people had hoped. At first, experts thought the economy would grow by around 7%.

But after the US and Israel attacked Iran, oil prices jumped and the rupee became weaker. Now, Moody’s says India’s economy may grow by only 6% this year. The reasons are simple: when fuel and other costs rise, companies raise prices too. When prices go up, people buy less.

So what can the govt do? One idea is to turn the weak rupee into an advantage. A year ago, one US dollar was worth about Rs 85. Now it is close to Rs 96.

This makes Indian products cheaper for foreign buyers. That could encourage foreign companies to open factories in India. India should also work harder to reduce its dependence on imported oil and gas.

The PM has already asked farmers to use solar-powered pumps. The country should also push electric vehicles and biofuels more strongly.

If Russia is ready to sell oil in exchange for rupees, India should make long-term deals with it. India can also earn more foreign money by attracting more tourists, including people coming for medical treatment.

Another big question is whether people will keep spending money. High inflation will hurt poorer families the most, even though the Centre and states are giving out cash support.

But richer people may continue spending, just like they did during the pandemic. Companies should focus on selling more premium products.

Sales of home appliances and cars have been strong in recent years, and that should continue. Rich investors may also spend more if stock markets keep rising.

Small policy changes, such as allowing EPFO to invest more money in stocks, could help boost spending.

If foreign investment, manufacturing, and spending all increase, India will import more goods from other countries. Oil, gold, fertiliser, cooking oil, and electronics already make up a huge part of India’s import bill.

But India could balance this by exporting more goods and services. The country can either play safe and accept 6% growth, or take some bold steps and try for 7%.

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