Tensions in West Asia and other parts of the world could provide an opportunity for India, a Finance Ministry report stated on Wednesday. However, it acknowledged that conflict, combined with the impact of El Nino, poses an upward risk to inflation and deficits and a downward risk to the overall economy.

“For most economies, the current global drift is a source of vulnerability, however, for India, with its strong domestic fundamentals and tradition of strategic autonomy, it can be an opportunity,” the latest edition of the Monthly Economic Review (MER), prepared by the Department of Economic Affairs, said.

Explaining further, the report noted that a multipolar world creates space for India to convert diplomatic goodwill into durable economic gains. As a manufacturing destination, services hub and large consumer market, India can push for more ambitious trade agreements and diversified supply chains.

Second, the report noted that the last two months have shown that resilience cannot be built instantly in a moment of crisis but requires deliberate, planned efforts. Strategic energy reserves, the shift to renewables and domestic manufacturing capacity take years to develop. Regarding India's strengths, “India can capitalise on its strong domestic fundamentals and active trade engagement to move forward at the speed the moment demands,” it said.

Policy prescriptions

According to the report, it is axiomatic in policy circles that crises should not be allowed to go to waste. “This crisis is no exception,” it said, while listing five policy prescriptions. First, India should prioritise energy security and resilience. Second, the domestic decriminalisation and deregulation agenda need not be hostage to external developments. Third, this is the ideal time to unleash long-overdue policies which remove distorted crop choices and improve agricultural productivity.

Fourth, boosting, encouraging and promoting AI-insulated (i.e., resilient to AI-driven labor displacement) durable trade skills among Indian youth will not only boost domestic manufacturing and services but can also serve as a source of export earnings. “Five and finally, the need for tax policy certainty and predictability has never been greater,” it said.

War impact

The report noted that while the West Asia conflict constitutes a significant supply shock with rising risks to inflation, trade, and financial flows, India’s domestic demand, policy buffers, resilient financial system, and sustained public investment provide some insulation. Whether these would prove adequate in the event of prolonged uncertainty regarding energy and fertilizer supplies remains an important question. On top of this, the El Nino Southern Oscillation (ENSO) is expected to keep India’s Southwest monsoon below normal, it said.

Most rainfall districts are expected to receive below-normal rainfall this season. Therefore, “risks are tilted to the upside for inflation, fiscal and external deficits and to the downside for economic growth. However, while striving to sustain economic growth, policy is expected to safeguard medium-term fiscal and external stability,” the report added.

Published on April 29, 2026