mid-day Opinion: Oil is India's biggest external vulnerability

The Prime Ministerrsquos austerity message must not be heard merely as an appeal for restraint It must be decoded as a serious macroeconomic signal Growth was never going to be a oneway streetThis is not about switching off one light saving one litre of fuel or postponing one purchase This is about protecting Indiarsquos external stability at a time when the global economy is once again becoming uncertainCA Dr Mitil Chokshi is a senior partner at Chokshi amp ChokshiTo understand the economics behind this announcement we must realise that India is not just a growth economy it is also an importdependent economy We import a large part of our crude oil gold fertilisers edible oils and many critical industrial inputsA trailCharting the trail we will see when global crude prices rise when shipping routes become risky and when geopolitical tensions disturb supply chains the pressure does not remain outside our borders It enters our trade deficit It pressures the rupee It increases inflation It affects government finances And ultimately it reaches the common householdPM Narendra Modi File picEvery unnecessary dollar spent on oil gold luxury imports or avoidable foreign travel has to be earned through exports financed through capital flows or defended through foreign exchange reserves That is the hard truth of external economics Hence why spend foreign exchange when the same product can be bought in rupeesWhen the Prime Minister speaks of austerity the message is clear reduce avoidable dollar demand before the situation forces tougher policy actionThe patternFuel conservation is not just a moral duty it is an economic necessity Oil is Indiarsquos biggest external vulnerability Once again see the pattern A crude price shock first widens the import bill then pressures the rupee then raises transport costs and finally pushes up food and retail inflationPeople wait with empty LPG cylinders to avail the refilled ones in Mumbai on March 27 File picPTIAn oil shock never remains an oil shock It becomes an inflation shock It becomes a fiscal shock It becomes a household budget shock Indians not wasting on travel to the office and reverting to the same work from home during COVID is a wise choice This should have been announced within a week of the war but like they say better late than neverGolden wordsGold is another example We love gold culturally emotionally and financially Yet economically gold imports are a direct foreign exchange outflow When we buy imported gold in excess we are also importing pressure on the current account deficit The more Indian rupees that circulate within India like during COVID the more efficient future growth will beGlobal energyThe fertiliser issue is equally important Fertiliser prices are linked to global energy markets If costs rise either the farmer pays more or the government subsidy bill rises Both outcomes affect the economy Services should be completely procured from Indian entities only some more joint services by lsquoMade in Indiarsquo entities should be mandatory and countries like South Africa France and China have done these in the past No harm in customised replicationStability markerTherefore this austerity call is not antigrowth It is prostability It is not about stopping consumption It is about distinguishing productive consumption from avoidable leakage Markets will read this message carefully Importheavy sectors crudesensitive sectors companies with dollar borrowings logistics aviation chemicals and consumer discretionary businesses may feel pressure At the same time exporters domestic manufacturing energy efficiency and importsubstitution businesses may gain relevance Already we are seeing that defence outlay to Indian entities is increasingAction cautionThe punchline is simple this is not a crisis announcement but it is a cautionary signal Indiarsquos growth story is strong Despite significant outflows from FPIs the Stock markets have held up firm But even a strong economy must respect external shocks Austerity in this context is not weakness It is preparedness We are staring at a weaker rupee and more expensive life due to the rising import bill but we have seen worse days in the 1990s and are smart Indians who know how to optimise In economics confidence and consumption matter Growth matters too Optimisation indigenousness thinking Indian at every step is key Decoding for the layman we can say reach out for your pizza and pasta but when cooking it go for lsquodesirsquo ingredients When on pizza or pasta I end with a cheeky or saucy signoff May the sauce be with usChokshi No crisis but be cautiousThe punchline is simple this is not a crisis announcement but it is a cautionary signal Indiarsquos growth story is strong Despite significant outflows from FPIs the Stock markets have held up firm But even a strong economy must respect external shocks Austerity in this context is not weakness It is preparedness Decoding for the layman we can say reach out for your pizza and pasta but when cooking it go for lsquodesirsquo ingredientsCA Dr Mitil Chokshi is a senior partner at Chokshi amp Chokshi