How is Indian industry coping with the effects of the ongoing uncertainty in West Asia?

The Indian industry has faced a series of geopolitical challenges over the last 12-15 months, from Operation Sindoor to US tariffs. The government’s response has been to double down on reforms and proactively engage in free trade agreements with countries where we have complementary strengths.

While we entered the West crisis with strong momentum — GDP growth hit 7.5 per cent, corporate balance sheets are robust, and the investment cycle has picked up — the impact is now being felt through higher input and energy costs. However, there is no panic. Demand remains steady, and in B2B sectors, pricing transmissions are already happening. We are seeing industry take tactical steps: managing inventories more conservatively, building working capital buffers, and addressing supply chain risks. Even if the conflict settles soon, it will likely take three to four months for logistics and energy capacities to stabilise.

You mentioned B2B pricing transmissions, but not B2C. Where is that being absorbed?

B2C hasn’t seen the same immediate shift because of existing contracts and inventory pipelines. In B2B, transmission is faster. If a cosmetic company’s packaging costs rise by 20 per cent, it might only impact their total cost by 1-2 per cent, so they may wait to see if the situation stabilises before passing it to the consumer. If this continues, however, we will eventually see a “price creep”, at which point we must watch for the impact on demand.

Will the recent election results impact industrial momentum?

New governments often bring a fresh vision for industrial policy. In States like West Bengal, where large infrastructure projects have been stuck, this is an opportunity for a “reset” to unlock those projects. It also allows for better Centre-State coordination to push for the factor reforms needed on the ground to catalyse more investment.

What specific support is the industry seeking from the government right now?

We are in daily discussions. The government has already provided substantive relief by absorbing petrol and diesel price differentials and offering customs and packaging credit relief. CII is currently making targeted representations, particularly for MSME exporters. Many are facing high demurrage and transportation charges for shipments stuck. Broadly, we believe government funds are best utilised in long-term projects that build India’s resilience in energy and manufacturing rather than broad overall subsidies.

India’s overall goods exports, and particularly to West Asia, have slowed down. Is this a major concern?

I expect exports to pick up once things stabilise. Two factors give us a competitive advantage: the series of new FTAs coming into effect and the currency. Even if the rupee stabilises, it will be 6-7 per cent cheaper than a few months ago. Globally, there is a strong desire to de-risk supply chains and partner with stable countries like India. We just need to ensure our manufacturing capacity is ready to meet that demand.

On the import side, not just oil, but non-oil imports, too, have been rising significantly. How do we address this?

That is the real challenge. We have identified about 80 manufactured goods where we see high future demand. We need a specific roadmap for these — identifying required technology, capable companies, and whether they need PLI incentives or temporary protection to establish a local base.

The PLI scheme is a flagship for manufacturing, but results have been disappointing in some sectors. How can it be improved?

We are finalising a report for the government on this. While many schemes have worked well, some saw low uptake due to unrealistic targets or applicants lacking the financial wherewithal to set up full-scale plants. Our recommendation is to make targets more realistic and, in some cases, move the timelines. PLI remains essential as we pivot toward manufacturing items we currently import, or those with high future demand.

With the US reciprocal tariffs now revoked, are trade prospects looking stronger?

While it takes time to rebuild after a loss of momentum, trade between India and the US will grow significantly. People are also waiting to see what happens with the final trade deliberation. But momentum is picking up and I think by and large trade will grow significantly going forward.