Trump’s political bind may end the crisis quickly
Aiyar frames the likely resolution through an American political lens. Petrol prices in the US are up around 33% and diesel by about 25%, directly hitting consumers and feeding into transport and manufacturing costs. With mid-term congressional elections approaching, Trump risks losing the House of Representatives and possibly the Senate — a scenario that would severely constrain his ability to govern. “Because of this, Mr Trump wants to get out of this as soon as he can,” Aiyar said to ET Now, adding he expects a resolution “within a week or two,” possibly with Trump declaring victory and walking away.
India is stronger than in past shocks — but not immune
Aiyar puts the current shock in historical context. The 1973–74 oil crisis saw prices quadruple; the current spike is roughly 50% — significant, but far more contained. India is also a very different economy today — one that has absorbed Covid, the Great Recession, and the dotcom bust without needing IMF bailouts. “We are a strong and resilient economy,” he said.
However, if the conflict drags on for three to four more months, the impact becomes “very-very harsh.” India’s heavy dependence on the Gulf for LPG and LNG is its most acute vulnerability, with Qatar — a key supplier — saying its damaged gas fields could take up to five years to fully repair.
Second-order pain: Fertilisers, MSMEs, and inflation above 4%
Even a quick resolution will not prevent all downstream damage. Aiyar flags fertiliser prices as a major pressure point — higher input costs will force the government to raise minimum support prices across crops. Industries that rely on LPG or LNG as raw materials, from ceramics to chemicals, are already under stress. Aluminium prices have surged due to Gulf supply disruptions, squeezing downstream manufacturers further.
On inflation, Aiyar expects the headline number to rise well above the RBI’s 4% comfort zone, possibly touching 5–6%. Rising minimum wages — already at ₹22,000 per month around Delhi — will compound the pressure. “The second order impact on certain industries will be very significant and we will see it in the next two quarters, maybe even beyond,” he warned.
Fiscal deficit may widen to 5.5%; rate cuts unlikely
To absorb the macro shock, Aiyar believes the government has both the political will and the capacity to expand the fiscal deficit by 1–1.5% of GDP. With the NDA politically secure, he says difficult decisions — including long-delayed fuel price hikes — will come after the elections. He would not be surprised if the fiscal deficit touched 5.5% for one year. On monetary policy, he is clear: the RBI should not be cutting interest rates in this environment — if anything, the direction of risk is the other way.