By Dhurjati Mukherjee
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 stance of President Trump still causes concern. The world, including India, is worried over tensions re-escalating and has 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 abandonment of the declared ceasefire. Global output is poised to fall to 3 per cent from 3.5 per cent last year, according to the IMF’s World Economic Outlook. India’s growth was pegged at 6.4 per cent for the current fiscal year, as against 6.5 per cent projected in April, and it 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 intact and oil prices remain 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 with 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.
According to him, only two countries, China and Vietnam, have grown consistently at over 6 per cent for 25 years. He also stated that the West Asian crisis demonstrated the critical role of small and medium-sized industries in the value chain. As the country needs to rely on resources that exist in India or at least source them from friendly countries, a lot more exploration and resource mining are needed as these form the foundation of every other cost structure, he observed, pointing out that India remained largely unexplored.
The new emphasis is on cloud and AI businesses. Global giants like Amazon ($48 billion), Google ($15 billion), AirTrunk ($30 billion), Saint-Gobain ($1.1 billion) and the 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.
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. While Alphabet, Amazon, Meta and Microsoft intend 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 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 to taking the economy forward has to be geared towards balanced 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 ones. Simultaneously, the employment potential must be kept in mind and all government posts in education and health filled to ensure better services to the people — an essential facet of democratic functioning.
