Krishna Srinivasan, Director of the Asia-Pacific Department at the International Monetary Fund, has said that India has so far managed to cushion the impact of the ongoing global energy shock, aided by favourable trade developments and strong macroeconomic fundamentals. However, he cautioned that rising food inflation remains a key risk that policymakers must closely monitor in the coming months.

Speaking during an interaction, Srinivasan noted that while the ongoing geopolitical tensions in West Asia have disrupted global energy markets and pushed oil prices higher, India entered this period from a relatively strong position. He highlighted that robust growth momentum, controlled inflation levels, and available fiscal space have helped India absorb the initial shock better than several of its regional peers.

A significant factor supporting India’s resilience has been the interim trade agreement with the United States, which led to a sharp reduction in tariffs. According to Srinivasan, tariffs fell from as high as 50% to 18% and were later reduced further to around 10% following a US court ruling on reciprocal tariffs. These developments, combined with accommodative financial conditions, have acted as tailwinds that offset the economic impact of rising energy costs.

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Despite this relative strength, Srinivasan warned that a prolonged period of elevated oil prices could weigh on India’s growth outlook. He outlined two potential scenarios: one where oil prices remain high through 2026 before easing in 2027, and another where elevated prices persist beyond 2027. In both cases, he estimated that the cumulative output loss for India could range between 1 and 2 percentage points through 2027.

He also pointed out that the government has taken steps to mitigate the impact of higher energy prices by reducing excise duties on fuel and increasing subsidies on fertilisers. However, he cautioned that excessive intervention could distort market signals, potentially leading to mismatches between supply and demand and causing further price pressures over time.

Looking ahead, Srinivasan identified food inflation as a “clear risk” for India, particularly due to disruptions in fertiliser supply chains linked to the global conflict. As fertilisers are a critical input for agriculture, any sustained increase in their cost could push food prices higher. He advised that central banks, including the Reserve Bank of India, must remain agile and responsive in adjusting monetary policy if inflationary pressures begin to rise.

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