‘The biggest worry is…’: CEA Nageswaran on US-Iran war’s impact on India

Chief Economic Adviser V Anantha Nageswaran said the biggest worry for India is what happens to crude oil prices if the conflict in West Asia extends into the second half of the year. He noted that while the Indian economy remains resilient for now, a prolonged disruption in oil markets could pose risks to growth, inflation and government finances.

In an exclusive interview with India Today, Nageswaran said India is in a stronger position than many fear due to stable economic indicators, healthy foreign exchange reserves and easing oil prices. However, he added that the biggest uncertainty remains the impact of the ongoing conflict on global energy markets.

ON OIL

Nageswaran stated that India's risk assessment has not changed significantly since the conflict began. Crude oil prices, which surged immediately after the crisis started, have since fallen back close to earlier levels. Economic data for March and April showed resilience despite global uncertainty. He cautioned that if the conflict continues for several more months, oil production and refining activity in the Gulf region could remain disrupted.

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Asked about the longer-term impact of the war, Nageswaran said a prolonged disruption could hurt not only India but the global economy as well. If oil production remains affected and shipping routes continue to face uncertainty, economic growth could slow. In a worst-case scenario, India's growth rate could fall below 6%. While he did not predict oil prices, estimates ranging from $120 to $160 per barrel are being discussed globally if the conflict worsens.

"The biggest worry is what happens to crude oil prices if the conflict stretches into the second half of the year," he said.

He explained that a sustained rise in oil prices affects the economy in several ways. Higher crude prices raise costs for industries, transport and businesses. These costs may be absorbed by the government, oil companies, or passed on to consumers through higher prices. If the government absorbs part of the burden, it could affect fiscal calculations and borrowing requirements. If consumers bear the cost, inflation may rise and household spending could come under pressure. "One way or another, higher oil prices eventually impact growth, inflation and economic activity," he said.

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ON GOLD

Responding to questions about Prime Minister Narendra Modi's recent caution on gold consumption and imports, Nageswaran said the message should be seen as a broader appeal to reduce avoidable imports. The government's focus is on strengthening foreign exchange reserves and limiting unnecessary outflows of foreign currency. He also noted that Indians have a deep-rooted cultural attachment to gold that goes beyond economic conditions. "Gold has long been viewed as an important financial asset and source of security for households," he said.

Nageswaran said sectors such as aviation, fertilisers and MSMEs were among the first to raise concerns after the conflict began. The government has introduced support measures, including emergency credit schemes and relief for some industries. Additional support could be considered if the situation worsens, but the government prefers a measured approach rather than large-scale intervention too early. Drawing a comparison with the Covid period, he said policy responses should match the scale and duration of the crisis.

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ON RUPEE, FOREX RESERVES

He said India's foreign exchange reserves remain a major source of comfort and currently cover nearly 11 months of imports, providing a strong buffer against external shocks. "We are nowhere near a situation like 1991," he said, referring to India's balance of payments crisis. Recent measures aimed at boosting reserves were precautionary steps meant to further strengthen India's position.

On the weakening rupee, Nageswaran said India is not an exception. Several Asian currencies, including the Japanese yen, South Korean won, Indonesian rupiah, Thai baht and Philippine peso, have also weakened against the US dollar over the past year. Investors remain cautious about Asian economies because of global uncertainty and higher oil prices. "The rupee is acting as a shock absorber, much like other Asian currencies," he said.

Watch the full conversation here: