India’s External Shock Is an Economic Opportunity |
By- Gaurav Dalmia & Chetan Aggarwal
Austerity is typically associated with economies that have weak fundamentals or otherwise lack options for achieving fiscal sustainability. But the Indian economy’s fundamentals are relatively strong. Real GDP growth is expected to reach 7.4% this fiscal year, with medium‑term potential growth hovering around 7%. Moreover, private consumption now accounts for 61.5% of GDP, the highest share since 2011–12.
India’s vulnerability lies in its external account: the country runs a persistent merchandise-trade deficit of roughly $280–300 billion annually, which is only partly offset by services and which is financed largely by capital inflows (including remittances). While this is not a problem during times of relative stability, it generates acute risks when energy prices surge and global capital becomes more risk-averse.
The United States’ and Israel’s war on Iran has produced precisely this combination, and Indian equity investing is compounding the risks. This is exemplified by the recent rally in the South Korean and Taiwanese equity markets—a reflection of the global AI and semiconductor boom—with foreign-capital outflows from the Indian stock market, which lacks AI offerings, totaling $37 billion since January 2025.
Modi’s government sees the writing on the wall, so it is taking steps to prevent a sudden terms‑of‑trade shock from triggering shortages, fueling inflation, destabilizing financial markets, and eroding India’s strategic autonomy. To this end, purchasing........