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• This instability is no longer temporary
• To create stability in the development process
• Stability in the economy by taking tough decisions

Neelkanth Mishra, Chief Economist, Axis Bank, speaking at Kotak Private Banking’s Take and Counter Take (TACT) event, said India should brace itself for geopolitical disruptions that come every one to two years. Also, the temporary lull in the current state of tension should be used to accelerate long overdue structural reforms. Speaking at a special forum organized by Kotak Pvt., Mishra argued that while fears of an escalation in tensions between Iran and the United States have subsided for the time being following a two-week ceasefire, the global shockwaves are unlikely to end.

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Stability in the economy by taking tough decisions

“This is part of a bigger war between the US and China. Until these equations are resolved, we should expect such disruptions every one-two years,” Mishra said in the session moderated by Kotak Asset Management managing director Nilesh Shah. He further said that the lesson for India is to stabilize the economy by taking tough decisions when conditions are favorable for development rather than waiting for stability.

Disruption in four percent of global energy flows

Mishra focused on the secondary effects of conflict. According to him, the impact of war falls more on the supply chain than on the headlines. “It is bad for India, but very scary for the world,” he said. He warned that disruptions in the energy, chemicals, fertilizers, logistics and aviation sectors could quietly cripple production even in places far from the battlefield. If four percent of global energy flows are interrupted, Mishra said, “that means four percent of global GDP is directly taken away,” and that’s before the impact is felt on tourism, manufacturing and trade finance.

‘Situation feels like 1989-93, but India is more prepared’

Despite this, Mishra expressed an optimistic view of India’s preparedness. India is entering this phase with stronger buffers compared to previous episodes of global tensions, he said. “Compared to any other time in our history, we are better equipped to deal with it now,” he said, recalling a conversation with a senior policymaker who compared today’s environment to the turbulent period of 1989-93. Mishra said the difference now lies in India’s deeper capital markets, stronger external balance and increased credibility in policies.

Disruption in four percent of global energy flows

Mishra made a very important point that the current market and supply chain problems are creating a fertile environment for reforms. “It’s very painful for the world, but it will end at some point,” he said. When this crisis ends, economic momentum will return and countries that have taken concrete steps during this recession will emerge stronger. He also warned that delaying the decision while waiting for peace would be a big mistake.

He emphasized on making electrification a strategic priority. He said India’s final energy consumption is still less dependent on electricity, making India more vulnerable to global fluctuations in oil and gas prices than other countries. Accelerating electrification and properly managing energy prices will reduce the impact of global politics and improve efficiency, he said. Besides, housing and urban infrastructure are sectors where strong policy steps can boost domestic demand, which is largely insulated from global volatility.

‘Make a tough decision now’

Neelkanth Mishra’s recommendations gave prominence to reforms in the tourism and service sectors. He said India is the “world’s most expensive tourist destination” due to restrictive zoning and floor-space regulations. Relaxation of FSI for hotels and improvement of urban capacity will reduce costs, increase competitiveness and create massive employment. “It’s only when we’re in trouble that we take tough decisions,” he explained, adding that it’s hard to come up with a clearer opportunity for reform.

While Mishra opined on economic stability, his fellow panelist Major Gaurav Arya focused on security risks. He warned of rising terrorist incidents and called for increased defense spending. Nilesh Shah, combining these two issues, said that development, security and reforms are no longer separable from each other.

Mishra advised that while a ceasefire may provide temporary relief, it will not work by being apathetic. “This phase will pass,” he said. “The question is, do we use this time to improve?”

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