War shocks markets, exposing India's economic vulnerabilities: FPJ 8th April 2026

 

RBI Policy provides a practical picture of the road ahead amid West Asia war: Business Standard 8th April 2026

 The RBI policy comes at a time when there is uncertainty on the impact of the war on the economy. However, quite significantly, just before the policy was announced, a ceasefire was struck by the United States (US) with Iran for a fortnight. While it is still uncertain if the ceasefire will mean the end of the war soon, the RBI’s statement provides an official view of how one could look at the next 12 months.

 

The RBI was not expected to touch the repo rate, and a status quo seemed most appropriate under these conditions. The stance, too, has remained unchanged at 'neutral', which is significant because if there was a change indicating future rate action, it could have been interpreted as being hawkish. The tone is nonetheless cautious, which is the right approach given the uncertainty.

There are some signs that the war may have impacted the economy, though it is to early to tell as any data for March pertains to the year gone by that could raise red flags for the current fiscal 2026-27 (FY27). The purchasing manager's indexes (PMIs) look less impressive than in February though well above the level of 50. Goods and services tax (GST) collections were steady in March, but shortage of fuels has led to several units in the hospitality business at the micro level closing down. Petro-based industries are still nervous of their fuel supplies, which will have a bearing on performance in Q1. Air fares have gone up and several companies have announced an increase in their prices. 

Against this background (which is very early), the RBI forecasts of gross domestic product (GDP) and inflation can be seen. GDP growth for the year has been projected at 6.9 per cent with a downward bias which will be lower than that last year. Significantly growth in Q1 will be low at 6.9  per cent, followed by three sub-7 per cent growth rates that should capture the war disruption impact. 

Inflation, on the other hand, is projected to be 4.6 per cent this year. It does look like that while the war impact has been buffered in to a certain extent. The possible El Nino impact this year, though acknowledged, may not have been part of the forecasts. This is understandable as it is a theoretical possibility only today.

External account

 

The RBI does sound cautious on the external account as this will be the first point of impact. Exports are to get pressurized with the ongoing challenges on the sea routes. Imports shock is more severe as it involves both physical supplies as well as higher prices being paid for these products. 

 

While commenting on the rupee, no specific measure has been announced. This has been the practice where there is intervention whenever required and forex management is seldom a part of the policy. The same holds for liquidity where there is an implicit assurance of supplies as and when required. This is important because any intervention of the RBI in the forex market will mean withdrawal of liquidity, which is then replenished by the central bank. 

he market reaction has been largely unchanged from the time of announcement of the policy, though all the three markets started off better post the ceasefire announcement- stocks, bonds and currency (helped by unwinding of forwards positions too).  

 

Rate cuts can now be ruled out and the question will be more on when there can be a rate hike. A clearer picture will emerge over the next few months. The August policy will have more complete data points when contemplating rate action.

Interview with Mint on war impact on India: Mint 3rd April 2026

 https://www.livemint.com/money/west-asia-war-india-recession-risk-economic-slowdown-madan-sabnavis-household-budgets-job-market-inflation-interest-rate/amp-11775105443794.html

The cracks in the fuel price ceiling: Indian Express 29th march 2026

 

With the price for crude soaring and oil marketing companies absorbing the blow, attempts to shield consumers may be approaching their breaking point

The government has lowered the excise duty on petrol and diesel to protect the consumer as of now. It is not certain that this situation will remain. There can be further action depending on the course of the war in West Asia and the price of oil. At present, the price of fuel at the pump is unchanged for public sector companies, while one private company has announced an increase. So, for how long can the retail price be held on to?

Let us look at the structure of petrol prices in Delhi. At present, one litre of petrol costs Rs 95. Of this, the actual price charged by the oil marketing companies (OMCs) to the dealer is around two-thirds of the final price or Rs 63/litre post the excise cut. The excise component is now around 12.6 per cent — this is the amount that the government earns of Rs 11.90/litre. The dealer commission is around 4.6 per cent or Rs 4.40 per litre. And then there is the value-added tax, which is 16.2 per cent of the price. VAT, which is charged on an ad valorem basis, is one part of the price that varies across states. This explains why the price of petrol varies across states.

So far, the burden of higher oil prices is being borne by the OMCs. The 66.6 per cent share in the final price also includes a profit being earned by these companies which keeps getting reduced as the cost of crude goes up. The interesting bit is that while Brent had peaked at $118.4/barrel on March 20, the weighted average price for India is close to $150 per barrel. As of March 24, the average price was $147/barrel. The price was $ 71 on February 27, which was just before the war began. Add to this the rupee depreciation of 3.3 per cent during the period from February 27 to March 25, and the cost is up further. It can be seen from this that as long as the Centre and state’s share in the static final price remains unchanged, the same is absorbed by the OMCs.

Here, it must be pointed out that the OMCs earned a higher profit when the price of oil came down to the range of $60-70 per barrel as the consumer price was unchanged at Rs 95/litre and the excise and VAT rates remained unchanged. The government did impose a supernormal profit tax on these companies and hence the gain was apportioned between the two.

However, with the cost of crude increasing sharply, the government has to take a call on apportioning this amount. In the Union budget for FY27, it has been assumed that collections from the excise tax would be Rs 3.88 lakh crore as against Rs 3.36 lakh crore in FY26. The present reduction in excise duty would mean a decline in tax collections. A similar action could also be considered by states. The option to increase the retail price can be exercised and doing so will probably steady the fiscal maths of the government. However, it will run the risk of pushing up inflation at a time when there is already concern over the possibility of this being an El Nino this year.

On balance, it may just be a matter of time before the price matrix is revised. It does look as if the next level of intervention will be at the consumer end, if and when required.

The bulge in government holds held by RBI could be put to work: Mint 24th March 2026

 https://www.livemint.com/market/bonds/rbi-government-bonds-build-infrastructure-open-market-operations-banking-g-secs-11774163252024.html

Where is the rupee headed? Financial Express 20th March 2026

 The Iran War has evidently turned the markets upside down. What appeared to be going well for the world economy has now become an uncertain spectre. The stock market continues to display nervousness with no end in sight. But a factor which affects all countries is currency, and the rupee is once again under pressure. With the Rs 92 mark being breached, the logical question is, how much higher or lower can it go?

The answer is really a shrug because one does not know the intensity and length of the war. The rupee will be driven by two sets of factors—the fundamentals (imports, remittances, foreign portfolio investors [FPIs]) and the strength of the dollar. This is the challenge for the Reserve Bank of India (RBI) which has, so far, dexterously steered the currency away from volatility. The issue is that whenever one speaks of the rupee, it is necessary to also see how other currencies are faring. Absolute depreciation numbers do not connote much as the current spate of movements is interlinked with what happens to other currencies.

Within the fundamentals, the obvious factor pressuring the rupee is the higher cost of imports. As oil is the largest component of the basket, any increase in price gets added to the trade deficit. Products like fertilisers and chemicals also get affected indirectly, which widens the deficit. On the other hand, the increase in exports may not work out given that the direction is also to countries embroiled in the war.

As for remittance flows, there is a large expat population in the Gulf and other western countries. This segment has been a useful contributor to remittance flows that has strengthened the current account deficit even when the trade deficit was high. Remittances from this region could be around 35% of the total, which is significant, given that the country could be getting anything between $135 billion $150 billion in good times. Also the expat population in this region could tend to belong to the low-skilled labour class whose earnings are also not very high. This means that any job loss or reduction in pay can lead to a sharper fall in remittances. This contrasts with the western world, where the population tends to be in high-skill jobs.

FPIs have been quite destabilising in the last couple of years, especially at a time when the West is going in for quantitative tightening, which has lowered the quantum of investible funds. To top it all, any news on tariffs has caused the funds to shift markets, which is now exacerbated by the war. Therefore, these flows will have a bearing on the daily movement in currency.

The conundrum here is that investments are based on how investors see markets and growth of economies. Further, currency stability is important as a declining rupee will mean lower real returns. Therefore, the end result is always uncertain. Indian markets were not the best performing ones until the war began as there was a sense that stocks were overvalued. Hence, the review of alternative markets that will be made by these investors will guide these inflows.

Normally, all these fundamental factors are represented by the change in forex reserves. Here, the economy is in a strong position as reserves are comfortable at over $700 billion covering around 11 months of imports.

Beyond fundamentals lie the external factors. Speculative forces are important here. A falling rupee will make importers rush to buy dollars, while exporters would like to hold back retracting their dollars, hoping to get more rupees once the conversion takes place. This becomes self-fulfilling and hence the RBI’s action becomes important. As a custodian of forex assets, the RBI has been stepping in often to ensure that these forces are curbed ,through the outright sale of dollars or taking forward positions, which sends strong signals to the market. The positions in the non-deliverable forward market provides good indications on this aspect.

But when it comes to what happens to the dollar, no central bank can do anything. When the dollar strengthens, there is a tendency for other currencies to weaken. The dollar index has moved closer to the 100 mark, which has automatically pulled other currencies (including the rupee) down. The trick is to ensure that the rupee remains within range and does not lose out on the depreciation, which will help retain export competitiveness without making it appear as a weak currency. Once again, it is the RBI that holds the strings.

Presently, it is hard to guess which way the dollar will go. With gasoline prices already climbing, inflation should increase in the US, causing the Fed to pause rate cuts. This means the dollar will strengthen. However, an unending war will impose more pressure on the dollar as it would not reflect well on the economy.

The rupee, though depreciating, looks satisfactory on a comparative scale. Being a country with a current account deficit means that the rupee should weaken. This is more so at a time when the capital account has been weak with negative FPIs and low, single-digit foreign direct investments, as repatriations are high. The present exchange rate of above Rs 92/$ does not look off the mark, though the indications going by the non-deliverable forward market talk of Rs 93/$ in the next couple of months. A conservative approach will be to look at a range of Rs 92-93/$ for the next month or so.

Will the new series of GDP accomplish anything? Free Press Journal 16th March 2026