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The ongoing global energy crisis amid the US-Iran war and possibilities of the restart of the conflict has affected the global economies in a negative manner. As oil prices fluctuate amid peace talks after touching fresh highs during the war, the Indian economy heavily dependent on oil imports\u00a0is expected to grow at around 6.5 per cent for this fiscal year, according to former IMF chief economist Gita Gopinath.\u00a0<\/p>
In an interview to India Today TV, Gopinath said that the prize for the Indian economy is that it is a larger domestic market, \u00a0and a lot of its growth actually comes from domestic demand.\u00a0<\/p>
“2025 was a good year in terms of domestic demand for the Indian economy. Monsoon was very good last year too. That helped,” said Gopinath. \u00a0\u00a0<\/p>
Suggesting measures to shield the Indian economy from the global energy shocks, Gopinath said, “The idea is to remain focused on the scenarios to build resilience in the economy, \u00a0to clearly diversify sources of supply. Energy independence is hugely important, and I think for a country like India, \u00a0which has a large domestic market, strong domestic demand, reforms at home can be a great source of resilience.” \u00a0<\/p>
Commenting on the oil price rise shock, Gopinath said, “I would first recognise the fact that this is a negative shock for the Indian economy. When you are a large importer of fuel and prices have gone up as much as they have, there will be a deterioration in the current account that requires accepting that there will be pressure on the rupee to depreciate.” \u00a0<\/p>
However, Gopinath is not in favour of using forex reseves to defend the rupee weakness. On the other hand, she said while India has so far managed to absorb the global oil shock, this is clear that shielding consumers from rising crude prices cannot continue indefinitely.<\/p>
“I don’t see an argument to go and use up very expensive foreign exchange reserves to go and defend the currency. This is a shock that has to be in a sense, borne. On the fiscal front, at some point, they will have to let prices at the pump go up by some amount otherwise the effect on the fiscal deficit is going to be very consequential,” said Gopinath.\u00a0<\/p>