Two big risks and two challenges for India

Having successfully tackled internal economic instability, it now faces external threats to growth ILLUSTRATION: BINAY SINHA

- T T RAM MOHAN

The finance ministry's latest Review of the economy, which came out on September 26, exuded confidence about the Indian economy being able to meet the Economic Survey's growth forecast of 6.5-7 per cent in FY25. Some two weeks later, the prospect of the forecast being upended by global events is very real.

Oil prices are hovering around $80 a barrel for Brent crude, an increase of 16 per cent from the September low. The Indian economy can take the increase in its stride. However, if events in the world at large were to push the price of oil beyond $100, we will have to start worrying.

"Nothing new there," optimists would argue. "The world has shrugged off worries about oil prices for over 30 months since February 2022, when Russia commenced its military operations in Ukraine." In June 2022, the price of oil went up to around $120 a barrel. From July 2022 onwards, oil prices have stayed below $100, with prices staying below $80 for the most part.

Two factors contributed to this remarkable outcome. One, the North Atlantic Treaty Organization (Nato) and the European Union (EU) imposed a price cap of $60 on oil purchased from Russia while also reducing dependence on oil supplies from Russia. The cap turned out to be quite effective.

Two, the doctrine of "managed escalation" has played out well. According to this doctrine, Nato would progressively equip Ukraine to effectively fight Russia. Each step on the escalatory ladder would be managed so that Nato itself was not drawn into a direct conflict with Russia. Escalation has been managed, the war in Ukraine has not derailed the world economy.