West Asia war, crude oil surge and FPI outflows deepen pressure on rupee and current account deficit
Chief Economic Advisor (CEA) V Anantha Nageshwar highlights the record low of Indian rupee hit at 95.63 against the US dollar on Tuesday. One of the key macroeconomic priorities for FY27 is saving further currency depreciation.
Since the beginning of the West Asia conflict, the rupee has weakened nearly 5% against the dollar, closing its weakest ever level on Tuesday, touching an intraday low of 95.75 rupee. Resulting Asia’s worst performing currency in 2026, decreasing around 6% this year.
Speaking at the Confederation of Indian Industry’s annual business summit in New Delhi, Nageswaran said, “Managing the current account credibly, financing it, and preventing further currency depreciation are the central macroeconomic imperatives of FY27.”
He also described India’s exposure to the West Asia crisis as “structural” and called it a “live Balance of Payments stress test, with direct consequences for inflation, the current account, and the exchange rate.”
🚨 Halting rupee slide top priority, Iran war a direct 'macroeconomic stress test', says CEA@Meghnamittal23 brings in more details ⤵️https://t.co/pizt1mWT1T
— Moneycontrol (@moneycontrolcom) May 12, 2026
FPI Outflows Pressure Rupee
The ongoing conflict in West Asia has intensified pressure on energy-importing economies, especially India. Rising crude oil prices, high gold imports and sustained foreign investor outflows have widened concerns around India’s Balance of Payments and exchange rate stability.
Foreign Portfolio Investors (FPIs) have pulled nearly $23 billion out of Indian financial markets since the conflict began, increasing pressure on the rupee. Weak global demand, muted foreign direct investment inflows and concerns over remittances from West Asia have further complicated India’s external sector outlook.
According to BofA Securities economists Rahul Bajoria and Smriti Mehra, “India’s current account deficit appears set to exceed ~2% of GDP – which the RBI has historically identified as the threshold level that India can finance sustainably over the long term.”
Read More: Government Explains Fuel Situation After PM’s Save Petrol Appeal Amid Price Surge
Crude Oil and Inflation Risks
Nageswaran highlighted the sharp rise in global commodity prices since the start of the US and Israel’s attack on Iran. He said Brent crude futures prices had surged 51%, while urea and ammonia prices rose 65% and butane prices climbed 51%.
“These numbers were not of a ‘temporary shock that will self-correct when the situation stabilises’,” the CEA said, warning that emerging economies should not expect the pre-2020 global economic order to return soon.
Despite rising global energy prices, the government has not increased domestic petrol and diesel prices so far. Public sector oil marketing companies are instead absorbing the losses, with estimates suggesting their April-June losses could touch Rs 1 lakh crore.
Modi Calls for Austerity
The CEA’s remarks come after Prime Minister Narendra Modi urged citizens to adopt austerity measures to help conserve India’s foreign exchange reserves. Modi called for reviving Covid-era practices such as work-from-home, virtual meetings, avoiding non-essential foreign travel and limiting gold purchases for a year. He also encouraged consumers to prioritise locally made products.
Analysts believe the comments signal growing concern within the government over fiscal pressures and external vulnerabilities.
Nomura economists Sonal Varma and Aurodeep Nandi said, “PM Modi’s comments signal that the pressure on the government fiscal finances is reaching a tipping point, that there is less appetite for further rupee depreciation, and that the burden of adjustment may be incrementally shared with consumers.”
Global Economic Risks
Nageswaran identified four structural changes reshaping the global economy — geoeconomic fragmentation, technology bifurcation, the energy transition premium and geopolitical risk repricing.
“These are not going to reverse,” he said.
“What is also required is the strategic clarity to recognise that the window for repositioning in trade relationships, technology partnerships, supply-chain architecture, and the coalition building that will shape the next international economic order is real, but not permanent,” he added.
Read More: PM Modi Calls for Cutting Foreign Product Use Amid WFH, Gold and Petrol Conservation Push
