The EY Economy Watch report for May said that in view of the mounting pressures emanating from the West Asia crisis and the changing world trade and economic order, India might look at recasting its growth strategy to ensure that no long-term damage is done to its medium to long-term path.
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Earlier this month, Prime Minister Narendra Modi called for austerity measures, including a reduction in gold imports, a cutback in foreign travel, and a reduction in domestic fuel consumption.
The EY report said that going forward, India needs to prepare for unanticipated economic shocks and vulnerabilities.
The government may look at building strategic reserves for crude oil, LPG, fertilisers, processed and unprocessed rare earth materials and basic medicines and critical medical equipment; building dual-use infrastructure to minimise the impacts of unanticipated nuclear and biological threats; and re-strategising the achievement of sustainable levels of current account and fiscal imbalances.
Among other initiatives, an accelerated shift towards green and nuclear energy, including Thorium-based production, focusing on developing indigenous technologies, may also be needed, along with a sharper shift towards electric vehicles.The report noted that recent diversification of petroleum sources has helped India reduce its dependence on the Strait of Hormuz.
“India may also need to work on further diversification and acceleration of alternative trade routes, including the India-Middle East-Europe Economic Corridor (IMEC) and the Indo-Pacific corridor covering the Malacca Strait,” the EY report said.
The report said that in view of the West Asia crisis and other unfavourable economic developments, a substantial reorientation of policies may be needed to keep the Indian economy performing close to its potential.
Besides, a faster pace of exploitation of domestic oil finds is also needed.
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India may cheer an Iran deal, but peace in Hormuz won’t refill its emptying economic tank
These policies could include building relatively larger reserves of crude and primary commodities where India’s import dependence and vulnerability are high. The pace of substituting crude with other energy sources also needs to be accelerated, particularly greener ones, it said.
Oil prices have increased by about 50 per cent, and traffic through the Strait of Hormuz has fallen by more than 90 per cent from pre-conflict levels since Iran blocked the Strait of Hormuz following the US and Israel’s coordinated strikes on February 28.
India imports 88 per cent of its crude oil needs and roughly half of its natural gas requirement. These mostly come via the Strait of Hormuz.