In his statement published as part of the minutes of the MPC’s June 3-5 meeting, Kumar said the conflict has exposed several vulnerabilities in India’s economic outlook despite the country’s strong macroeconomic position.
A key concern, he said, is India’s dependence on imported hydrocarbons and fertilisers, a substantial portion of which move through the Strait of Hormuz. Any disruption to traffic through the strategic shipping route could affect supplies and raise import costs for the world’s third-largest oil importer.
Kumar warned that higher crude prices could push up inflation both directly and indirectly. Beyond fuel costs, petroleum products are widely used as fuel and feedstock across manufacturing sectors, raising the risk of broader cost pressures across the economy.
He also highlighted India’s economic linkages with the Gulf region, describing it as both an important export destination and a major source of remittances. Any prolonged disruption in the region could therefore affect export earnings as well as household incomes supported by overseas remittances.
On the agricultural front, Kumar pointed to risks arising from El Nino conditions, which could affect monsoon rainfall and add uncertainty to food production and prices. Food inflation remains particularly sensitive to weather conditions, making the progress of the monsoon an important factor for policymakers.Kumar further noted that heightened global uncertainty has triggered foreign portfolio investment outflows from India, putting pressure on the rupee and raising concerns about the balance of payments impact of rising crude prices.
Strong buffers against external shocks
The MPC member, however, said India is entering the current period of uncertainty from a position of strength. Before the conflict escalated, the economy was witnessing robust growth alongside low inflation. Foreign exchange reserves stood at nearly $700 billion, enough to cover about 11 months of imports, while the current account deficit remained manageable, supported by resilient merchandise exports, strong services exports and remittance inflows.
He also said higher-than-normal reservoir levels could help cushion the impact of a weaker monsoon. Reservoir storage is currently more than 20% above the 10-year average, while Indian agriculture has become increasingly resilient to rainfall fluctuations over time.
Fiscal space and export support
Kumar argued that fiscal consolidation has created room for the government to respond if the external shock intensifies. The fiscal deficit has narrowed from 6.5% of GDP in 2022-23 to 4.4% in 2025-26, providing space to sustain public investment and absorb higher subsidy costs arising from elevated crude prices.
He said public investment may need to play a larger role if higher costs and supply chain disruptions weigh on private consumption and investment sentiment.
Kumar also cautioned that slowing global growth could hurt demand for Indian exports, especially in the Gulf region. However, recently concluded trade agreements with major partners such as the European Union and the United Kingdom could help offset some of the weakness, particularly in labour-intensive sectors.
Reflecting these risks, Kumar noted that growth is projected at 6.6% in 2026-27 compared with 7.6% in 2025-26, while inflation is expected to rise to 5.1% from 2.1% a year earlier.
Given the uncertainty surrounding the duration of the conflict and its impact on growth and inflation, Kumar voted to keep the repo rate unchanged and retain the MPC’s neutral stance.
“Hence, I vote for the status quo on the repo rate. I also support maintaining the neutral stance,” he said.
The comments were released as part of the minutes of the RBI’s June MPC meeting, where all six members voted unanimously to keep the policy repo rate unchanged at 5.25%.