The truce between the US and Iran as well as the reduced oil prices in the global market has brought hopes to the Indian economy but the latest stand of President Trump still causes concern. The world, including India is worried over tensions re-escalating and called for restraint and uninterrupted flow of energy supplies.
The global economy is set to react sharply for the rest of 2026 after the war disrupted energy supplies and triggered a fresh bout of inflation, the International Monetary Fund (IMF) warned recently. The forecasts reflect the damaging toll from the war on Iran and more recently the abandoning of the declared ceasefire. Global output is poised to fall to 3 per cent from 3.5 per cent last year, according to IMF’s World Economic Outlook. India’s growth was pegged for the current fiscal at 6.4 per cent as against 6.5 per cent projected in April and shall remain the fastest growing major economy, supported by strong momentum in private consumption and services activity. There are hopes for the economy if the truce remains and oil prices stable.
Goldman Sachs and EY had stated that the easing of the West Asia crisis and lower energy prices may be positive for the Indian economy supporting growth, easing inflationary pressure and helping rein in fertilizer subsidy, which was seen to double the budgeted level. Though global crude prices are presently lower, one is doubtful whether the supply would remain unfettered. There is obviously a need for India to get used to this uncertainty and find new suppliers of oil and gas.
What is most important is for India to be competitive as its counterparts to avoid the next big challenge the world will face. This was very rightly stated by the CII President. R. Mukundan, while asking the government to push for reforms to create an enabling environment for industry by focusing on power, infrastructure and labour. Being challenging times “the only solution for us is to be more competitive”. According to him, only two countries, China and Vietnam, have grown consistently for 25 years over 6 per cent.
He also that the West Asian crisis demonstrated the critical role of small and medium industries in the value chain. As the country needs to rely on reries, a lot more exploration and re structure, he observed, pointing out that India remained largely unexplored
It would be pertinent here to refer to the CII predicted two sets of solutions, one for large corporates and the other for MSMEs. While big firms needed a bigger plot than before as the scale of operations expanded manifold, the requirement for smaller firms is inadequate. It is necessary for them to repurpose existing land by giving more floor space index (FSI) allowing them to expand rather than moving to a new place, which is more convenient. Drawing a lesson from the success of the GST Council, CII proposed a land council with participation from the state and the Centre to agree on certain ground rules.
Additionally, is the news of Amazon’s recent announcement of fresh investment of $13 billion which will largely go towards AI and cloud businesses, taking its recent commitment to $48 billion for 2030 and making it the largest overseas investment in the country. According to Amazon President and CEO, Andy Jassy the combination of $40 billion since 2010 and the incremental $48 billion through 2030, the largest absolute amount of it is still the market business.
The new emphasis is on cloud and AI businesses. Apart from Amazon, global giants from Google (15 billion) to Air Trunk (30 billion), Saint Gobain (1.1 billion) and Canada Pension Plan Investment Board (700 million) have announced investment plans in the last few months which cumulatively add up to $95 billion over the next four to five years.
There is reason to be optimistic after months of crisis. Not just oil and gas but India’s exports were affected as the country could not enter the Gulf nations. India has very close relations with most of the Gulf nations, including Iran, Israel and a few others and no major power has its combination of relationships. As is well known, India has suffered the costs of the war without having shaped its course. As a major trading partner of Iran, and as a major beneficiary of Gulf security, India could demonstrate its willingness to engage more deeply with Iran. India’s role as a leader of the Global South would make this role even more meaningful in the coming months.
While industrial development must move forward, manufacturing with appropriate technology and economies of scale has to be the core focus. India has achieved significant progress in recent years in the fields of electronics, pharma, space and even defence production and new innovations in these and other fields are very much needed. It has gone ahead with defence production, but remains one of the largest arms importers outpacing Saudi Arabia, Ukraine and Pakistan.
Sovereign AI is the need of the day to develop our own AI ecosystem, from chips to foundational models and apps. India has talked about it long enough, but cost is a hurdle. Where Alphabet, Amazon, Meta and Microsoft intent to spend $650 billion on AI this year, India got just 0.6 per cent of global funding last year.
However, other areas which are labour intensive need to be given equal attention to create jobs and cater to the increased labour force that needs employment. There are, no doubt, many incentives by the government for entrepreneurship promotion and skill development but more encouragement is necessary for those residing in the rural areas. The laggard states in the East and North-East have to come up through policy changes and development of necessary infrastructure.
While the oil crisis looms large, the entire approach of taking the economy forward has to be geared towards balance and dispersed development of all regions of the country in a pragmatic and planned manner. This would ensure welfare for people of different regions, including the backward. Simultaneously, the employment potential must be kept in mind and all government posts in education and health filled up to ensure better services to the people – an essential facet of democratic functioning. —INFA
