Elevated oil prices, potentially strong El Niño conditions during the monsoon season, and the tariff-induced fragmentation of global trade are bearing down on the Indian economy and will likely be a drag on GDP growth. But these adverse conditions may be a blessing in disguise if they force India to complete its economic reform agenda.
NEW DELHI—Current economic debates in India focus on why the rupee has fallen and how much to rely on foreign-exchange reserves. This is understandable, given the volatile geopolitical environment. But the biggest risks to the Indian economy today stem from more specific shocks: elevated oil prices, potentially strong El Niño conditions during the monsoon season, and the tariff-induced fragmentation of global trade. These developments are especially worrying because India also faces the specter of a structural slowdown in the IT services industry, one of its main growth drivers, linked to AI’s rise.
