New Delhi: The West Asia war may temporarily hurt India’s growth rate and dampen investment sentiment, but the conflict poses no existential threat to most businesses, according to Rajiv Memani, president of lobby group Confederation of Indian Industry (CII).
Memani said that as a result of the external shocks, businesses are closely examining their factories, enterprises, trade routes and export markets to de-risk themselves.
Memani, who is also the regional managing partner of EY Africa-India and chair of EY Growth Markets Council, said that the challenge before businesses is to strike a balance between the costs that they can absorb and those that must be passed on to consumers, while managing the potential impact on demand.
Rising cost pressures may require partial pass-through to consumers, some of which may already be happening, Memani said.
The global energy shock due to the war in West Asia is fuelling price rise, raising concerns for policymakers worldwide, including in India.
The statistics ministry data showed that wholesale price index (WPI)-based inflation jumped from 2.13% in February to 3.88% in March, signalling the fast transmission of the energy shock at the wholesale level.
Consumer price index-based inflation in the meantime surged from 3.21% to 3.4%, still within the central bank’s tolerance range of 2-4%.
Clouded outlook
Government had forecast a 7-7.4% economic growth for FY27 before the West Asia war started on 28 February, which has now clouded this outlook. The Reserve Bank of India (RBI) earlier this month forecast a 6.9% economic expansion.
Businesses are closely evaluating the heightened risks in a volatile geopolitical situation and ways of de-risking from future shocks, Memani said, adding that quite a few large Indian companies are evaluating captive nuclear power plants, a sector that has been liberalised now. But it is a long-term development to watch, said Memani.
He does not see job creation getting impacted because of the West Asia crisis. “I don’t think it should impact. There could be a short-term impact where industry’s posture may be slightly more conservative because of some moderation in growth. But overall, I do not assume that there will be an issue on the jobs front because of this,” Memani said.
Bigger issue to tackle
He said there is a bigger issue to tackle–skilling people at scale to ensure there is enough manpower for the advanced manufacturing capacity that comes up in sectors like semiconductors and electronics.
“Private sector and growth will bounce back once things settle down in a few months, due to India’s fundamental economic strength. India will remain the fastest-growing economy, and I hope the pace of reforms continues to create new opportunities. I am less worried about a long-term impact on private investment. The main concern is that the conflict doesn’t prolong too long,” said Memani.
Fast-paced reform is the way to navigate uncertain times, according to Memani.
“The most important thing for India, and the government is already doing this, is to maintain and accelerate the pace of reforms. This includes reforms to encourage energy transition and ensure greater resilience in energy, manufacturing and supply chains. Execution of these reforms with speed is critical. While there’s great momentum in reforms, even faster execution is needed because these are fundamental, long-term changes and results on the ground will take time to materialize,” said Memani.
India needs to improve linkages to global value chains and encourage more global companies to set up manufacturing here, he said.
India’s tax rate structure is already very competitive and predictability has improved over recent years. The government should continue to simplify processes using technology and create more efficient dispute resolution platforms, Memani said. “It is crucial to avoid situations where litigation takes 10-15 years to resolve.”
