The truce between Iran and the United States of America has swiftly turned around India’s economic environment. In the past 10 days, roughly since the announcement of the agreement and its signing, the price of the Indian crude oil basket has traded between $75-$80 per barrel, approximately 27% below that in May and 32% lower than the March-April peak of $114 per barrel. Macroeconomic projections have changed equally fast: inflation forecasts have been revised downward, growth prospects restored, interest rate bets recalibrated, bond yields softened, and the rupee — the most pressured of all — has strengthened. The relief is understandable given the range and the intensity of the policy arsenal deployed in these months: precious metals duty hikes, retail fuel price increases, forex market interventions, derivative activity limits, and several taxation and hedging subsidy initiatives to attract foreign capital in the first week of June. This very swing invites a critical question about India’s economic resilience.
India’s claim to economic resilience rests on its growth performance — no less than 7.8% average real GDP growth since 2021-22 sustained across multiple shocks like the pandemic, its aftermath, global inflation surge, supply-chain disruptions, conflicts and tariff turbulence. Institutional advancements like a credible inflation framework, long-term fiscal sustainability, a sound financial system and well-capitalised banks complete the picture of macroeconomic stability.
Resilience, from this macroeconomic perspective, is precisely this: the capacity to absorb shocks and minimise macroeconomic volatility through sufficient fiscal capacity for counter-deployment, monetary space to lower rates during a slowdown, systemic financial strength to stabilise trade and capital markets, and, especially for emerging economies, maintain external balance and exchange rate stability.
By this standard, the US-Iran war shock tested and exposed important limits. A single price — that of crude oil — proved sufficient to simultaneously unsettle inflation, the exchange rate, the current account, and the fiscal position. The sheer extent of the policy response confirms this.
This vulnerability is not new. In the four-year period to 2013-14, international crude prices averaged around $103 per barrel, a sustained shock that pushed the current account deficit to dangerous levels (an average -3.3%) even as net foreign investment shares in national income were maintained at approximately 2.2% on average. By
the time the US Federal Reserve chairman expressed the need to scale back its bond-buying programme in May 2013, it had required emergency mobilisation of non-resident Indian deposits of $34 billion to steady the rupee.
Today’s episode rhymes: estimates for NRI deposit mobilisation in this event range between $50-$80 billion or even more. The structural exposure is unchanged. Strong economic growth and institutional frameworks with better macroeconomic management have not materially reduced the economy’s sensitivity to oil prices.
Tested on the same fault line, economic resilience is no different than before. The capacity to withstand an oil price shock is as weak, if not more so, because while India has accumulated the highest-ever absolute amount of forex reserves and run a very small pre-existing current account gap, its foreign investment shares on net basis are tremendously weakened.
As we can see, the gains in economic resilience are somewhat selective. For example, in this episode, a slowing economy before the shock (low inflation) and a credible inflation framework allowed the monetary authority enough scope to hold interest rates through the turbulence rather than raise them aggressively as past episodes required. Well-capitalised banks lent financial stability and reduced the risk of amplified domestic effects.
However, these are partial and conditional. The underlying sources of vulnerability remain unaddressed. And new ones have emerged.
In the macroeconomic context, the first gap is in the fiscal realm. The strong growth-low inflation situation has not translated into meaningful countercyclical capacity — the ability to provide sustained fiscal support during nasty surprises like this one. Government support was short-lived in this episode, lasting barely two months before fiscal deterioration pressures reasserted themselves — this was akin to a first-line responder than an enduring buffer. This is not surprising. India’s public debt remains elevated, obligations to reduce deficits are binding, and flexibility for subsidisation is minimal. This structural limitation is equally relevant when growth slows from any other cause.
Second is the structural weakening of the financial account. Foreign direct investment has dropped, and persistent portfolio capital outflow reinforces its unreliability. This combination and its convergence with current account widening from higher oil prices have amplified exchange rate pressures and constrained policy response.
Beneath the balance-of-payments and fiscal effects lies a more fundamental question: India’s exposure to oil price shocks is ultimately structural. The economy depends heavily on imported fuels, fertilisers, chemicals, and raw materials, inputs that permeate production costs, food prices, transport, and manufacturing alike. Until this is meaningfully addressed, the transmission of external energy price shocks into domestic prices and the external account will remain swift and potent. Diversifying crude oil sources to reduce concentration risk, building and maintaining strategic petroleum reserves to smoothen disruptions, and speedier investments in renewable energy infrastructure and grid capacity merit prioritisation.
Beyond the exposure to oil price vagaries, the shifting nature of external shocks demands a rethinking of what resilience means. First, the dominant shocks of recent years — the Russia-Ukraine and the Israel-US-Iran wars, US tariff actions and so on — are primarily geoeconomic in character, rooted in geopolitical fissures rather than traditional business-cycle fluctuations. Unlike demand or financial shocks that monetary-fiscal tools are equipped to manage, geoeconomic disturbances operate through supply disruptions, sanctions, and alliance reconfigurations. Conventional macroeconomic instruments offer limited safeguards against these. Second, climate shocks are becoming more frequent and severe: five consecutive years of high food inflation, largely driven by heatwaves and uneven rainfall, illustrate how these constitute a new macroeconomic risk.
All three dimensions are structural, recurring, and, in varying degrees, intensifying. It is time to broaden the concept of resilience. Strong growth and low inflation are necessary but not sufficient conditions. True resilience requires structural insulation from critical import dependencies, meaningful fiscal buffers, and policy frameworks attuned to the new external risks. The respite due to the US-Iran truce is welcome but it should not obscure the lessons therefrom. India’s economic resilience is genuine in some respects but fragile in others. Recognising this distinction and acting on it systematically are more valuable than the comfort of a label.
Renu Kohli is Senior Fellow, Centre for Social and Economic Progress, New Delhi. Views are personal
