The Indian rupee continues to weaken against the US dollar. If the RBI does not intervene decisively, the exchange rate could well slide to Rs 100 per US dollar. To stabilise the rupee, the RBI may need a war chest of at least $50–60 billion, and even that would provide only temporary relief. The underlying causes of the crisis lie largely beyond the RBI’s control.

The crisis in the Middle East is finally hitting India pretty hard. Energy and fertiliser costs have almost doubled. The recent increase in petrol prices by around Rs 3-4 per litre is only a partial pass-through of global prices. Similar underpricing exists in LPG, LNG, and fertilisers, especially urea. These pressures are likely to widen the fiscal deficit beyond 5 per cent of GDP.

Foreign portfolio investors are losing interest in India and withdrawing their investments. Domestic investors are equally worried and are not coming forward to invest big. The IMD has forecast a strong El Niño. As a result, the Indian economy is losing momentum. Our calculation, based on today’s conditions, is that in the current financial year (FY27), India will be lucky to clock 6 per cent GDP growth and contain Consumer Price Index (CPI) inflation below 6 per cent. If the Strait of Hormuz remains closed for another three months, GDP growth will fall below 6 per cent, and CPI inflation will shoot above 6 per cent — the upper band of the RBI for inflation control. The RBI will not have much choice but to raise the repo rates soon, triggering the northward movement of all interest rates. The economy seems to be on the brink of a........

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