India remains a bright spot but must use West Asia crisis as an opportunity to take policy measures, says MER

India remains relatively well-positioned in the ongoing West Asia conflict but must use this crisis as an opportunity to take forward policy initiatives, the Finance Ministry’s Monthly Economic Review has said.   “It is axiomatic in policy circles that crises should not be allowed to go to waste. This crisis is no exception,” said the Monthly Economic Review for April, outlining five areas where India must take forward its reform agenda including energy security and tax policy certainty.   The report underlined that if these policy actions are undertaken, India will emerge with a much stronger foundation and platform for sustained high growth in the years to come. The report, released on Wednesday, comes out 60 days after the start of the West Asia war and provides an assessment of how the Indian economy has performed in this period.   The report pointed out that India remains a relative bright spot, with the IMF revising India’s 2026 GDP growth upward to 6.5%, underpinned by domestic demand, carry-over momentum, and a sharp reduction in US tariffs. It noted that while the West Asia conflict constitutes a significant supply shock with rising risks to inflation, trade, and financial flows, India’s domestic demand, policy buffers, resilient financial system, and sustained public investment provide some insulation.

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It has noted that demand conditions and economic activity will be influenced by emerging pressures stemming from rising input prices and supply chain constraints. But as the fragile peace holds on with the ceasefire, it expects the situation to improve in the second half of 2026.   Of the five action points in the MER, the first is the need to prioritise energy security and resilience by holistic measures such as better public transportation that would enhance energy security and improve the liveability of Indian cities. “…it cannot substitute one import dependency for another. Vulnerability to sudden stoppages should not worsen,” the report said.   It has also suggested that the domestic decriminalisation and deregulation agenda need not be hostage to external developments and has highlighted that regulatory simplification that lowers the cost of imports and exports will be particularly valuable in these times.   This would also be the ideal time to take up long pending policies to remove distorted crop choices and improve agricultural productivity. “In India, the forecast of a below-normal, spatially uneven monsoon underscores the urgency of getting agricultural and water policies right,” the report said.

MUST READ: 'UAE quits OPEC, gains flexibility; oil prices to stay...': Julius Baer report   It also suggested promoting AI insulated durable trade skills amongst Indian youth as that would not only boost domestic manufacturing and services but can also be a source of export earnings. “India’s employment challenge includes but transcends the impact of AI on Information Technology jobs alone,” it said.   Lastly, it has underlined the need for tax policy certainty and predictability that would help attract investments and boost domestic capital formation. “…other countries are not only weaponising supply chains but also investment flows, making it difficult for businesses – domestic or foreign – to relocate,” it pointed out, adding that India’s task is cut out and all agencies will have to lend their shoulders to attracting capital flows. “Tax policies, logistics, liveability for expats, a culture of research, development and innovation, and a skilled, fit and healthy population are the key elements,” it said.   The report highlighted that for most economies, the current global drift is a source of vulnerability but for India with its strong domestic fundamentals and tradition of strategic autonomy, it can be an opportunity. “First, a multipolar world creates space for India to convert diplomatic goodwill into durable economic gains. As a manufacturing destination, services hub and a large consumer, India can push for more ambitious trade agreements and diversified supply chains,” it said.   Second, the last two months have shown that resilience cannot be built instantly in the moment of crisis but requires deliberate, planned efforts. “Strategic energy reserves, shift to renewables, and domestic manufacturing capacity take years to build. As far as strengths go, India can capitalise on its strong domestic fundamentals and active trade engagement to move forward at the speed the moment demands,” it further underlined.

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