Unpredictable tariff policies of major economies and conflict in West Asia pose twin risks to India's macroeconomic stability. Discuss with reference to recent developments.

Macroeconomic stability rests on low inflation, a manageable current account deficit (CAD), a stable rupee and room in the budget. In 2025–26 two shocks arrived together. The US announced, suspended and reimposed tariffs, and US–Israel strikes on Iran led Iran to disrupt shipping through the Strait of Hormuz, which sent fuel prices soaring [1]. One shock hits trade and the other hits energy, so India's external and price stability is squeezed from both sides.

Risk 1: Tariff unpredictability (trade channel)

• Policy uncertainty: The US cycle of announce, suspend and reimpose has left businesses and consumers unsure what comes next [1]. Indian exporters cannot price contracts or plan capacity.
• Export and jobs risk: Labour-intensive sectors that depend on the US market face cancelled orders. Lower export earnings widen the CAD.
• Investment chill: Firms may postpone investment while trade rules keep changing. This weakens the "China+1" opportunity.

Risk 2: West Asia conflict (energy channel)

• Import dependence: Indian refineries process far more imported crude than domestic crude [2], so supply through Hormuz is a weak point.
• Imported inflation: Higher crude and freight costs feed into fuel, transport and food prices, which complicates the RBI's inflation-targeting task.
• Fiscal and currency stress: A costlier oil import bill pressures the rupee and the CAD. Excise cuts or subsidies to cushion consumers reduce fiscal space.
• Remittances and diaspora: Conflict in the Gulf puts at risk the jobs of Indians working there and the money they send home.

Why "twin" risks compound

Tariffs → exports ↓ ┐
                    ├→ CAD ↑ → rupee ↓ → inflation ↑ → policy space ↓
Hormuz → oil bill ↑ ┘

Fig: Both shocks meet at the current account.

Mitigating factors

• Comfortable foreign exchange reserves, a variety of crude suppliers and strategic petroleum reserves soften the shock.
• Trade negotiations with the US and other partners, along with free trade agreements, spread export risk across markets.

Together, these shocks show that India's growth is exposed to external disruptions. India should diversify its export markets through FTAs, expand strategic reserves and renewables under the National Green Hydrogen Mission, and keep its fiscal policy sound. That would turn the twin risks into a push towards economic resilience and strategic autonomy, in line with SDG 7 (affordable energy) and SDG 8 (decent work and economic growth).