India’s consumption has remained “very strong” through the war in West Asia, chief economic advisor V Anantha Nageswaran said, pointing to April’s record GST collections.
Responding to a question from Forbes India at Ashoka University’s Annual ICPP Growth Conference on Saturday, the CEA noted that the Rs 2.43 lakh crore in GST collections for April was evidence that a “demand compression” had not materialised.
“The GST numbers of April show that consumption growth was very strong. Of course, if consumption growth is very strong, it could also mean higher trade deficit. So, in a way, the demand compression didn’t happen and that’s what the numbers tell you,” he said, adding that it was too early to make an assessment on what the continuation of the war would mean for state finances.
Gross GST collections in April increased 8.7 percent to a record high of Rs2.43 lakh crore compared to the same month last year. Government data shows that the primary reason for the spike was a 26 percent increase in imported goods to Rs 57,580 crore, even as domestic collection grew at a modest 4.3 percent to Rs1.85 lakh crore.
In its economic review released earlier this week, the Finance Ministry warned that demand compression—on top of current supply shocks—has become a “serious concern”. The report pointed out that a supply shock in the Indian economy is “apparent”, and that high prices, rising inflation and a slowing pace of economic activity could exert pressure on demand.
Price shock, not supply disruption
Nageswaran said that the ongoing war in West Asia is more of a price shock rather than a supply disruption.
“As we did during Covid and the Russia-Ukraine war, we are managing the supply aspect, but prices are not in our control because they are internationally determined,” he said, adding that even as the military conflict in West Asia is over for now, the strategic contest is alive.
He stressed that unlike the oil shocks of 1973-74 or 1979-80, India’s exposure today was comparatively contained. He added that from a supply perspective, the amount of energy availability lost as a percentage of global supply made the current crisis the most difficult in history in absolute terms, but India’s position was better managed, and that the government was quietly engineering a burden-sharing arrangement.
“There is a certain pass-through that is already happening,” he said. “We are arriving at a modest arrangement with respect to burden sharing between the fiscal policy side, inflation, households and the oil marketing companies.”
Macro outlook
Despite the headwinds, Nageswaran maintained that India was better placed than most to absorb the shock, citing a fiscal deficit at 4.4 percent of GDP last year, credible capital expenditure of nearly Rs17 lakh crore at the union level and three sovereign credit rating upgrades. “We are facing this challenge after having consolidated quite credibly,” he said.
He suggested that the era of open globalisation had likely ended around 2015, and that the next 20 years might more closely resemble the 1925-1945 period than the integrated world order that followed the Cold War.
“Geopolitics will compel us to be nimble and flexible, and shed old models of thinking,” he said.
He added that India also needs to think about other areas such as nickel, tin and copper where it has high import dependence. “We need to build strategic buffers if we have to make a shot at manufacturing and becoming indispensable.”
External sector pressure
Nageswaran acknowledged that higher import prices and lower remittances will impact the current account deficit (CAD) which could widen to near 2 percent or beyond in FY27.
He added that gross FDI for 11 months of FY26 had already reached close to $88 billion, breaking out of the $70-80 billion range that had persisted for five years. “With one more month of data, we may end up FY26 with a gross FDI number close to $90-95 billion,” he said, calling it an important signal that India remained a credible investment destination. He added that the spate of FTAs with the EU and the UK which will come into effect this year along with the interim agreement with the United States, will convince global manufacturers that India isn’t facing high tariffs.
On the net FDI, however, he held that India was a “victim of its own success” in having a deep equity market with a healthy IPO pipeline. “Many PV/VC investors found it easier to exit from India to compensate for their inability to exit from other markets,” he said.
On investment
Nageswaran noted that listed corporate profits for NSE500 grew at annual rate of 30.8 percent per annum in the five years since the pandemic, yet private capital formation was “disappointing”.
“Corporates and second- or third-generation entrepreneurs chose to accumulate those cash profits and probably set up family offices elsewhere rather than investing in real assets on the ground,” he said, adding that India’s non-oil, non-gems-and-jewellery trade deficit remained at $140 billion.
He was equally sceptical of the standard defences. “The problem with such explanations—difficult operating environment, global uncertainty, competition from China—is that you cannot explain a marginal phenomenon with a stock explanation,” he said.
“Marginal phenomena has to be explained with marginal factors. Unless the operating environment got worse, you cannot use it to explain a marginal change in behaviour.”
He also pushed back on the notion that weak demand explained the investment shortfall. “If you don’t pay workers well enough or hire well enough, you don’t create the demand yourself. To some extent, the private sector may have contributed to its own demand uncertainty.”
China’s legal lockdown on supply chains
Nageswaran flagged China’s recently notified orders 834 and 835 as a structural threat to global supply chain diversification, calling their language “deliberately elastic”. The regulations criminalise information-gathering activities related to industrial and supply chains in China and authorise action against employees suspected of helping shift supply chains under foreign pressure.
“The very uncertainty is the enforcement mechanism,” he said. “China-plus-one is not about thwarting India. It is about stopping any country from facilitating diversification away from China.” He called for India to develop its own supply chain security framework and an inward investment screening mechanism as institutional responses.
AI, IT and a call for trade skills
On the technology front, Nageswaran urged IT companies to treat the AI disruption as a spur to innovation rather than a threat. While acknowledging that 45 to 50 percent of Global Capability Centre revenues were potentially automatable, he said that 50 percent of that was value addition which will continue to grow.
He argued that trade skills and the care economy—both largely insulated from AI disruption—needed urgent national investment.
