'India can weather short West Asia shock'

K Balasubramanian, India CEO & banking head at Citibank, believes that the economic fallout from the ongoing West Asia conflict will remain contained if the disruption is short-lived.

- K BALASUBRAMANIAN, INDIA CEO, CITIBANK

India’s strong foreign exchange reserves and strategic crude reserves, he says, provide an important buffer against volatility.In an interview with Dev Chatterjee, Bala, as he is widely known, remains optimistic about India’s capital markets, pointing to a strong IPO pipeline and sustained M&A activity, supported by regulatory easing and deepening domestic liquidity. Excerpts:

How do you see the West Asia conflict evolving, and what impact could it have on business and capital flows?

The key question is duration. If the conflict lasts only in the short term, markets are likely to move past it quickly—recoveries in such situations tend to be sharp. The uncertainty is whether it would remain contained or extend. If it ends in a few days, I don’t see any material impact. Even if it stretches somewhat, it is unlikely to persist for very long. Iran has been under sanctions for years, which limits its capacity for prolonged escalation. The current intensity may last days or a few weeks, but eventually things should normalise. For India, three factors matter. First, crude oil. We import 80-85% of our requirements, so that is the biggest risk. However, India’s strategic reserves provide a cushion for a two-to-four-week period. Second, currency volatility. We have seen the rupee move towards 91.50. There could be further movement, but RBI’s reserves—close to $725 billion—provide significant firepower to manage volatility. Third, remittances from the large Indian diaspora in West Asia. If disruption is short-term, I don’t expect material impact there either. Anything lasting 1-4 weeks is manageable.

Beyond that, economic effects could become meaningful. Some firms with exposure to the region may face operational disruptions, but reconstruction later could also create opportunities. Net net, this is serious geopolitically, but I don’t see major long-term economic damage.

Could this affect investment flows into India?