How do you see the latest developments around the US rejecting Iran’s offer?
Despite all the logistical concerns around the Strait of Hormuz, 12-month crude oil futures are still trading at around $100 or below. There is a palpable lack of panic in the markets. So, there is a disconnect between the broader narrative, that we are on the verge of severe shortages in fuel, fertilizers, and petrochemicals, and what markets are actually pricing in.
The rational expectation, therefore, is that the US will eventually have to reach some kind of understanding with Iran because of domestic political constraints. However, the complication is that this is not simply a two-player game between the US and Iran. Israel is effectively a third actor with considerable influence, and that makes the situation more uncertain.
That is what makes me somewhat nervous despite the relatively calm market pricing. We may continue to see volatility until a diplomatic off-ramp emerges.
At the same time, the lack of panic suggests markets believe both sides have incentives to avoid escalation. The pain on the Iranian side is also substantial. My primary concern remains the role of the third actor, Israel, that seems to also have a veto over the process. Overall, from a US and Iran perspective, I still think there is a strong incentive to avoid war.
What’s your assessment of the macroeconomic impact?At the risk of sounding overly optimistic, the global economy has shown remarkable resilience over the last two and a half months. There are parallels with the early phase of the Ukraine war. At that time, energy prices surged and there were widespread fears about shortages in wheat, fertilizers, and other commodities. Yet the world adapted more effectively than expected.
Over the past six years, through the pandemic, tariff wars, and geopolitical shocks, companies and governments have become more resilient. As a result, my outlook for global GDP growth is far more optimistic than my outlook for inflation.
What is notable is that we are not seeing widespread panic or dramatic destruction of demand. One major reason is the strength of the electronics cycle in Asia. With the exception of India, much of Asia is deeply integrated into global electronics supply chains and is experiencing a boom in exports and investment.
Exports across major Asian economies are rising between 20% and 60%. Companies like Samsung and SK Hynix are benefiting enormously. Across Singapore, Vietnam, Malaysia, Korea, Taiwan, Japan, and China, export momentum remains extraordinary.
This strong demand cycle is offsetting some of the pressures from higher energy prices. Public sector and companies seem to be less shock prone and there is a big secular electronic cycle. Consumption is resilient. Those are the key factors, which is making me somewhat comfortable with the economic outlook with respect to GDP. With respect to inflation, one has room for concern.
PM has spoken about austerity. What should India be doing in this scenario?
India has historically tried to shield consumers from global energy volatility. My view is that policymakers underestimate the ability of citizens to adjust to higher prices. When people understand that price increases are driven by global events, they adapt.
Rather than freezing prices completely, India could adopt smoother pricing mechanisms.
There has been some commentary on India that its ‘Goldilocks’ phase is over. What is your assessment?
There are three dimensions to this issue: public markets, private capital, and FDI.
In public markets, India now faces stronger competition from other Asian economies benefiting from the AI and electronics boom. Korean, Taiwanese, Japanese, and increasingly Chinese companies are attracting global investor attention.
India has traditionally traded at premium valuations, while Chinese equities became deeply discounted after the post-pandemic slowdown and regulatory crackdowns. Investors who bought into China during that pessimistic period have been rewarded significantly. So global portfolio managers now have several attractive opportunities across Asia, not just India.
On the private capital side, however, India has remained relatively resilient. Domestic SIP flows have supported markets, and private equity and venture capital investment have continued, though at a slower pace.
Regarding FDI, I do not think the recent moderation is a major source of alarm. In fact, Indian companies acquiring overseas assets and technologies can be a positive development if it strengthens future competitiveness. You will see a lot of OEMs being built in India… It’s a bit unfortunate that the lull in external flows has coincided with this trade shock. And, as a result, we see rupee weakening, but in real effective terms I don’t think it has gone into some alarming territory. We have regional competitors who have also had their currencies adjust. So, I would look at these with no alarm.
On AI, do you think countries are underestimate its social and economic impact?
Yes, absolutely. I think there is a real risk of a major global disruption for which governments are not adequately prepared.
Historically, the world often relied on the U.S. to establish regulatory standards for major technologies. However, it is increasingly clear that the current U.S. administration is unlikely to lead on AI guardrails.
That means other countries cannot simply remain passive technology takers anymore. They need proactive regulatory frameworks.
Governments could require AI companies to operate through locally regulated subsidiaries, establish public-safety review systems similar to drug approvals, or even take strategic equity stakes in major AI firms.
At the moment, however, there is very little serious thinking in this direction because countries are afraid of being seen as anti-innovation.
What are the three or four key things India should focus on right now?
First, India should allow a more realistic adjustment of domestic energy prices while protecting vulnerable groups through targeted fiscal support.
Second, India should integrate more aggressively into Asian supply chains, especially electronics manufacturing. Much of Asia is benefiting from an export boom, and India risks missing that opportunity.
Finally, India should adopt a pragmatic approach toward Chinese investment and technology. India can attract critical technologies while still protecting national security interests through carefully designed joint ventures and technology-transfer arrangements.
None of these are revolutionary policies. The frameworks already exist. The challenge is implementation.
