Editorial     

Published: May 15, 2026
Updated: May 15, 2026

Gulf war’s ‘fiscal missile’ hits India

It is indeed unfortunate that although India is not involved in the Israel-US war with Iran and our country is far away from the theatre of war in West Asia, the bloody conflict has started severely stressing the Indian economy by triggering a massive oil shock, sharp currency depreciation and speedy capital outflows.

Since February 28, 2026, while the combatants traded bombs and missiles in West Asia thousands of kilometres from New Delhi, the tremors of the conflict started being felt across India’s economic landscape – from fuel pumps, corporate boardrooms and the stock market to North Block where the Union finance ministry examines the charts of fiscal balances.

As the war led to a surge in crude oil prices from $ 65 to $ 115-120 per barrel and safety-driven gold imports mounted, the current account deficit widened to 2.5% of the GDP and the rupee tumbled to a record low of Rs 96.60 to a dollar, compounding the loss of over $ 20 billion in foreign portfolio outflows. The monster of the inflationary price spiral started raising its head with elevated energy, logistics and fertiliser costs risking severe inflation across consumer sectors. Oil subsidies started stretching the government’s budget, with projections warning of a 0.5% to 1.5% drop in overall GDP growth if the hostilities persist.

Capitalising on the situation, the leader of opposition in the Lok Sabha, Rahul Gandhi, has warned that current domestic economic policies and global shocks such as supply chain disruptions will trigger an economic crisis, hitting hardest the youth, farmers, labourers and small businesses rather than large corporations.

Prime Minister Narendra Modi has admitted that the West Asia crisis poses a serious challenge to the economy and has urged Indians to curb fuel use, reduce foreign travel and pause gold purchases. Pointing out that global fuel costs have surged, he appealed to citizens to use public transport, work from home and resort to carpooling in order to conserve fuel.

However, urging the Indian public to reduce foreign travel is not likely to solve the problem, even as politicians across the board continue with their foreign junkets. Mr Gandhi has alleged that the PM’s appeal to the public is an indirect admission of policy failure. Most observers feel that if the West Asia war persists, India will face a severe economic storm. In fact, a growing number of other Asian countries are encouraging lower fuel consumption in view of the conflict. India imports over 85 per cent of its fuel needs and relies on the Strait of Hormuz passage for around 50% of its crude imports, 50% of its liquefied natural gas (LNG) and almost all of its liquefied petroleum gas (LPG) needs. Higher energy costs are expected to significantly widen the country’s trade deficit and current account deficit.

The need of the hour is to manage the current account credibly. Financing and preventing further currency depreciation are big imperatives for India this year, while another problem is that of foreign portfolio outflows, which have already hit US$ 20 billion mark since the war bugels had started blowing. The government should immediately come out with imaginative and effective measures to attract foreign investors, who have turned to China, back to India. Measures like scrapping the long-term capital gains tax and abolishing dividend tax will go a long way in solving this particular problem.