“SOLUTION TO THE CRISIS IS REFORMS TO PROMOTE EXPORTS”

Montek Singh Ahluwalia, former Deputy Chairman of the Planning Commission, on impact of the West Asia conflict on the economy, reliance on imports, and what can be done to push growth

- BY SURABHI

VETERAN ECONOMIST MONTEK SINGH AHLUWALIA has played a crucial role in shaping the modern Indian economy and was a key part of the government’s liberalisation efforts from 1991.

In an interview to Business Today, he spoke about the Indian economy and the West Asia crisis. He says the current account deficit (CAD) will be higher and GDP growth will be lower than current official forecasts and inflation will also be higher. But he warns that the balance of payments problem cannot be solved simply by cutting imports and relying on import substitution. “That can raise costs and make exports uncompetitive,” says Ahluwalia. He adds that having a large trade deficit with China should not lead India to adopt a closed-door attitude. Edited Excerpts:

Does the West Asia crisis pose significant challenges to the economic outlook?

Yes, it does, for the whole world. Various international agencies have lowered growth estimates for all major groups of countries and India’s growth prospects have also been scaled down.

The extent of the damage remains subject to considerable uncertainty. It now looks like the US and Iran have come to an agreement and the Strait of Hormuz may be open soon. That is good news for everybody. Oil prices have already fallen below $90 per barrel. However, even if the Strait is effectively opened over the next two weeks, it will take time for supplies to normalise. Some supply sources have been damaged, and strategic oil reserves have been run down sharply. Most countries will want to rebuild these and perhaps even increase them.

If oil prices average around $85 per barrel in 2026-27, this is about 25% higher than last year. Our import bill will be correspondingly higher, and the CAD could rise to about 2% of GDP for FY27 compared with only 0.6% in FY26.