Balancing inflation with growth a key task

West Asia crisis: Govt must continue to actively manage oil and gas supplies, strengthen strategic reserves, and build alternative logistics networks

- SUMITA DAWRA

AS THE WEST Asia crisis continues, it is important to assess its implications for the Indian economy in the coming weeks.The government of India has managed to keep petrol and diesel prices in control even as several countries across Southeast Asia, Europe, and North America have allowed prices to rise by 20-50%.

However, LPG and air travel costs have already risen in the country as a consequence of the war.

If the conflict drags on, India will have to manage the economic fallout of the Gulf turmoil across several fronts—energy supplies, trade flows, manufacturing, agriculture, and even sectors like hospitality. At the same time, there will be pressure on managing financial markets, fiscal revenues, and foreign exchange reserves.

That said, this moment could also push India to rethink and reset its policy options with respect to the energy mix, currency mechanisms for settling trade, and building more resilient logistics networks.

India’s strategic petroleum reserves (SPRs) and oil marketing companies’ buffers together provide around 60 days of cover and can cushion short-term spikes only. Diversification of oil imports and temporary easing of sanctions on imports from Russia and Iran offer a window to strengthen SPRs. This may also be an opportune time to expand rupee based trade settlements for energy imports, building on the institutional arrangements already put in place by the RBI.