IMF and ADB Warn India of Energy Shock Risks

Global financial leaders and policy experts warn that conflict in West Asia is exposing structural vulnerabilities in the Indian economy. Krishna Srinivasan, Director of the Asia and Pacific Department at the International Monetary Fund, noted that the closure of the Strait of Hormuz and damage to energy facilities triggered abrupt price surges. He cautioned that oil prices could exceed $120 in 2026, though he noted India has some policy space to navigate the shock due to stable inflation.

Economic projections for India have diverged. The International Monetary Fund revised India's growth forecast upward by 0.1 percentage point, citing lower tariff levels. Conversely, Asian Development Bank Chief Economist Albert Park lowered India's GDP growth projection to 6.3% for the current financial year, down from 6.9%, citing a 0.6 percentage point reduction due to the Middle East crisis. Park also projected inflation would rise to 6.9%.

Nagesh Kumar of the Monetary Policy Committee emphasized that high dependence on imported crude makes India vulnerable to hydrocarbon volatility, which pressures the rupee and increases input costs for MSMEs. To mitigate these risks, the Government of India has implemented excise duty cuts to stabilize retail fuel prices. Experts urge India to prioritize energy security by increasing domestic exploration, expanding strategic petroleum reserves, and accelerating the transition to renewable energy.