The CEA argued that India’s substantial refining capacity significantly mitigates the challenges of its high crude oil import dependence
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V Anantha Nageswaran, Chief Economic Advisor (File Photo)
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The ongoing West Asia crisis, marked by a “low simmer or high flame” standoff, poses a multi-channel macroeconomic challenge for India, potentially widening the current account deficit (CAD) to over 2 per cent of GDP in FY27 from less than 1 per cent in FY26, Chief Economic Adviser V Anantha Nageswaran reckoned on Friday.
Speaking at the Isaac Centre for Public Policy (ICPP) Growth Conference, Nageswaran outlined four key shock channels: elevated oil and petrochemical prices, slowing global and Gulf trade, sticky logistics costs, and remittance pressures from the Gulf region, which accounts for 30–40 per cent of India’s $120 billion annual inflows.
“These four channels are the channels through which we are going to face the macroeconomic impact in 2026–27,” he said, noting that while supply disruptions have been managed, prices remain “internationally determined” and beyond domestic control.
He argued that India is better prepared than many other countries to deal with the crisis. Nageswaran credited gross FDI of $90–95 billion in FY26, up from $70–80 billion, for the CAD resilience, despite net drags from equity exits.
Free trade agreements (FTAs) with UAE, Australia, UK, and EU are seen to lower tariff barriers, positioning India as a production hub. “India isn’t facing high tariffs that can also be a magnet,” Nageswaran observed, noting that he sees an improvement in the gross FDI numbers in FY27. Yet, the CEA noted that FY27 fiscal targets face headwinds from surging fertiliser and oil costs, with early-quarter data needed for precise estimates.
Nageswaran urged a mindset shift amid geopolitical churn — a potential G2 (US-China) accommodation by May 15 between President Trump and President Xi, an incoherent G7, and a 20-year globalisation reversal akin to 1925–45.
He likened China’s new Orders 834/835 as one where firms can “check out but not leave.” “China plus one is not about thwarting India; it’s about thwarting any country from trying to facilitate diversification away from China,” he stressed. India must respond with blocking statutes, supply chain security frameworks akin to the US CFIUS, and market access as leverage.
Domestic industry drew sharp scrutiny by the CEA. Corporate profits among BSE/NSE 500 firms surged 30.8 per cent annually post-Covid, yet private capex lags despite improving regulations at Centre and states, he stressed. “No matter how difficult the operating environment is… that didn’t come in the way of their profitability,” Nageswaran noted, questioning cash hoarding for family offices over real asset investments.
State-level deregulation offers hope against “licence-permit Raj 2.0.” Phase 1 reforms across 23 areas — consolidation, elimination, simplification, self-certification — stand at 86 per cent completion, with tougher Phase 2 under way.
On artificial intelligence (AI) IT hit, where 45–50 per cent revenues face automation, Nageswaran sees upside in value-added “nerve centre” roles for 1,700 North American firms. He also called for industry-government fusion, Odisha-style skills scaling, performance-tied subsidies.
Strategic buffers for energy, nickel, tin, and copper are vital for manufacturing ambitions, Nageswaran noted, adding that fertiliser shocks open agricultural reform doors in a climate-vulnerable food world.
The CEA further argued that India’s substantial refining capacity significantly mitigates the challenges of its high crude oil import dependence. He explained that despite importing most of its crude, India has built one of the world’s largest refining capacities, enabling value addition through processing into finished petroleum products for domestic use and export. “We don’t necessarily have to feel very bad about crude oil import dependence; we have one of the world’s most important and largest refining capacities,” Nageswaran stated.
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Meta description: CEA V Anantha Nageswaran warns West Asia conflict could widen India’s CAD to over 2 per cent of GDP in FY27, outlining key risks from oil prices, trade slowdown, logistics costs and remittances.
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