Gita Gopinath Decodes Rupee Pressure, RBI Policy & War’s Impact On Indian Economy

Added: 2026-06-03

[00:00:00]What further implication will it be on India's macro numbers and any specific indicators that are getting close to danger zone according to you?

[00:00:08]>> I mean, as of now, there is still very much the expectation that this conflict will end quickly and there are negotiations happening right now between Iran and the US.

[00:00:18]If you look at the pricing in markets, there is the sense that the strait will open. Now, we are not going to see the price of oil come down all the way very quickly. You know, it's going to take probably till the middle of next year for oil to come back to say $70 or $75 a barrel. So, there is a there is going to be an effect lasting into next year.

[00:00:43]In terms of the impact on India, you know, there is an expectation that growth, which is currently projected by the IMF at around 6 and 1/2%, will likely come down some more and come closer towards the 6% number because of these developments. But, I mean, we still are not seeing very big risks play out. I mean, we're not seeing oil at reaching 120 or even 140 dollars a barrel. So, that's the good news and if that were to happen, I think the consequences for the global economy would not be as severe.

[00:01:18]>> I remember in a recent article by you, you have just underlined that the rupee should find its own levels and it should stabilize on its own. So, can you just broaden this thought?

[00:01:27]Uh do you think that RBI is using its reserves for stabilizing rupee is a good step ahead?

[00:01:34]>> I think RBI has handled this very well.

[00:01:38]They have let the rupee adjust, which it should do because we have a change in the international environment. The what's happening in the Strait of Hormuz has consequences, therefore you should expect the currency to depreciate so that you get the adjustment that you need for the economy. They have been doing some RBI has been doing some amount of intervention and now to address disorderly market conditions and that is perfectly fine to do. I think what you should avoid against is doing an intervention that keeps the currency from simply not moving at all. And that I think would be counterproductive because it will also make foreign investors hold off and not bring money into the country because they think the rupee is going to weaken again in the future once the intervention stops. So, I think that the the way it's being handled right now is is appropriate.

[00:02:27]>> Well, global interest rates are already very elevated and we're sticking to our way again.

[00:02:32]RBI is to announce their bi-monthly policy tomorrow. The new rates are to be announced. So, do you see that RBI will increase their rates tomorrow?

[00:02:41]>> Well, RBI is obviously trading off at this point the consequences for inflation that come with the higher oil prices and with the currency depreciation but against what's happening in terms of economic activity.

[00:02:54]I mean, I expect that in the near term the RBI will likely be on hold but then eventually maybe in the future depending upon developments and what's happening with inflation, they can respond. But again, this it's going on a data-dependent approach uh is a useful thing to do uh and on one hand while there is some inflationary pressure, at least we're not seeing that much in consumer price inflation also because there's not been that much pass-through of the higher oil prices into fuel prices at the pump. There's been some increase but not that much.

[00:03:28]On the other hand, you also do have the somewhat softening of economic activity and so therefore maybe waiting for more data to see how what's happening with inflation, what's happening with economic activity before raising rates would probably you know, is is one approach to take.

[00:03:44]>> West Asia problem is hitting Indian population on a multiple levels, not only the energy crisis but on other fronts also. So, what can government do more to ease out the pain of the people due to the West Asia problems? Or should we go for the reforms only or some cash transfers can also help? And uh essentially, what can the government pull out from its box to ease out the tensions which are among the population at the financial front?

[00:04:07]>> I mean, the the government is already to some extent supporting the economy because it has not let prices at the fuel pump go up by as much as one would expect it to given how much world oil prices have risen. In fact, the past two years has been much lesser than what it is for many other countries. So, that itself is like an implicit subsidy to households and companies. Uh you know, what probably will be called for is to let more of the price increase pass through, but then have much more targeted support to vulnerable households and companies as opposed to broad-based support in terms of keeping fuel prices, you know, artificially low.

[00:04:47]So, I think that this uh uh at this current moment, providing more targeted support is a the best is the a good way to go.

[00:04:58]More generally, I think what would be helpful is uh in- doing further reforms in terms of improving the ease of doing business, having a positive story on AI in terms of the fact that AI can be net positive for India.

[00:05:15]These are the kinds of actions that would help increase interest in India as a destination for uh investment capital flows, and that would also take the pressure off the rupee.

[00:05:27]>> The supply side is uh worldwide very affected and it's on a very bad shape.

[00:05:31]The supply chain globally is very affected. And how can India, a country like India, stay resilient in its supply chain and related things?

[00:05:39]>> Well, I think one of the areas of supply where India can do more on is on the energy front.

[00:05:45]Shifting away from reliance on fossil fuel imports towards more reliance on you know, renewable energies, but also nuclear that can help reduce the the import bill and reduce the dependence on foreign supply chains.

[00:06:01]The the more broader reorientation of trade that we're seeing, you know, also driven by geopolitics can also be towards India's benefit because there are more countries that will look at diversifying their sources from which they buy and India can be one place where, you know, which could be providing inputs into the supply chain.

[00:06:23]It's good news that India is signing up more trade agreements including with the European Union. That will help also make India play a bigger role in global supply chains than it is doing right now.

[00:06:33]>> Ma'am, there is so much instability around the globe and still we are seeing the capital markets of US and some East Asian countries they're doing their all-time highs at this time. So, do you think that they're not actually accurately thinking about the risk of the West Asia crisis?

[00:06:48]>> No, what's happening in US and in in Korea and in in Taiwan is the AI story.

[00:06:54]Right? So, while on the one hand you do have the problem coming out of West Asia, but there's a huge AI boom right now happening in the US and in the countries that we met just talked about.

[00:07:04]That is driving up stock market valuations. There is certainly a risk that this is there is some exuberance, they are overdoing it, but given the expectations in terms of how transformative AI is going to be, there is huge enthusiasm for putting money in that particular sector and that's the reason why despite everything else that's happening in the world, there is these very high stock valuations.

[00:07:31]>> Ma'am, let's talk about AI. Do you think that AI has started putting its imprints on the global uh GDP? Do you think that AI AI's GDP in the global economy?

[00:07:41]>> AI is absolutely driving an important part of growth in say the US. If you look at the most recent quarter of growth in the US, then about half of it is coming from AI and it's coming because of AI investment.

[00:07:53]The you know, building up of data centers, investment in in chips, data processors and so on.

[00:08:01]You're seeing a large amount of investment and that is an important driver of growth in the US and since the US is a big part of the world economy, that has spillover to the rest of the world. So, absolutely, I mean AI is an important driver of growth.

[00:08:15]>> How much in the recent development US trade the Act 301 has been made to be effective on India and some other countries. So, how do you see the impact of Section 301 being imposed against India and other countries and how is it going to affect the exports of India to US?

[00:08:32]>> This news just came out today in terms of the imposition of 301.

[00:08:36]There are still the details that have to be determined about, you know, what it will take for India to come off the 301 list as opposed to being slapped with additional tariffs. I mean, these tariffs are not just consequential for India, but they're consequential for the US. We have seen inflation be higher because of the tariffs that have been put on all imports coming into the US.

[00:08:57]So, this is a problem even for the US.

[00:09:01]It is reducing trade between the countries that you have these high tariffs on.

[00:09:06]It is a negative for obviously for countries that get slapped with higher amount of tariffs. But, I think what we've learned from 2025 is that when it comes to US trade policy, there's nothing very predictable about it and it appears to be fluctuating over time. So again, I think we need to wait to see what the actual details are in terms of what this 301 ruling means, what precisely will be the tariff rate on India.

[00:09:30]>> Ma'am, we all are expecting that things stabilize as fast as they can. But, we are seeing escalations also on some part of the West Asia like Israel is still continuing with the Lebanon and last night we saw Iran attack the some of the US allies. So it's not going to end very soon. So is it going to go very long according to you and how do you see the impact of long-term war on all countries not only US, India or some Middle Eastern countries, all other countries.

[00:09:55]>> I I think there's a still a very high level of uncertainty about how this war will play out. I do worry that markets are not pricing in sufficiently this risk of a prolonged war in West Asia.

[00:10:09]If this continues for another month, we're looking at oil prices that could go up to like $120 and $140 a barrel and could stay there for much longer.

[00:10:20]In that scenario, we could have global growth which is now projected at 3.1% going down to say 2.5% and even closer to 2%. I think that risk very much exists even if it's not being priced in markets right now. Because there is still the optimism that there will be a deal and that we this situation will resolve relatively quickly.

[00:10:41]Different parts of the world are being affected differently by it and like I said the AI story is offsetting the negativity that's coming from this developments in West Asia for some countries in the world.

[00:10:55]>> Thank you. Thank you