Raghuram Rajan Warns India: Build Oil Reserves and Diversify Trade

Former RBI Governor Raghuram Rajan has issued a critical wake-up call to Indian policymakers, warning that geopolitical tensions and disrupted trade routes are reshaping the global economic landscape. As the world absorbs shocks from the Strait of Hormuz crisis and shifting tariff regimes, Rajan argues that India must move beyond headline growth figures to address underlying structural vulnerabilities.

Strengthening Energy Security and Strategic Reserves

A central pillar of Rajan’s warning concerns India’s energy vulnerability. The Strait of Hormuz remains a critical artery for India's imports of crude oil, LNG, and LPG. Rajan emphasized that even a potential US-Iran peace deal would not eliminate the fundamental risks exposed by recent disruptions.

To mitigate this, he urged India to build significantly larger strategic oil reserves. Furthermore, he suggested that India needs flexible backup energy options—citing China’s ability to rapidly ramp up coal production as a model—while simultaneously pushing for a long-term renewable energy transition. However, he cautioned that the renewable shift itself carries supply-chain risks, as India remains heavily dependent on imported solar cells and wind components. He called for the Indian industry to take a more proactive role in developing domestic manufacturing alternatives.

On the trade front, Rajan noted that while India's position is more stable than it was earlier this year, new challenges loom. He flagged an incoming 12.5% tariff tied to forced-labor concerns, noting it is slightly higher than the ~10% rates faced by Bangladesh and Pakistan. A more significant threat, however, is a potential "excess capacity" probe that could impose additional tariffs on Indian goods.

The solution, according to Rajan, is aggressive diversification. India must reduce its exposure to any single shock by diversifying both its import sources and its export markets. He also warned that the next major vulnerability might not be energy, but the supply of pharmaceutical inputs essential for India’s massive generic drug industry.

Addressing the Rupee and Investment Gaps

Rajan sprach auch die strukturellen Probleme an, die zur 14-prozentigen Abwertung der Rupie gegenüber dem US-Dollar in den letzten zwei Jahren beigetragen haben. Er argumentierte, dass der Verfall der Währung nicht nur ein Ergebnis der Ölpreise sei, sondern ein tiefer liegendes Problem widerspiegle: Indien es versäume, ausreichend ausländische Direktinvestitionen (FDI) anzuziehen.

Während die Rücküberweisungen hoch bleiben, wies Rajan auf eine Diskrepanz zwischen Indiens starkem BIP-Wachstum und seinem inländischen Investitionsniveau hin – eine Lücke, die er als den Unterschied zwischen „Reden und Handeln“ beschrieb. Er deutete an, dass die Leistungsbilanzposition handhabbar bliebe, wenn sich die weltweiten Ölpreise bei etwa 85 US-Dollar pro Barrel stabilisieren würden, was impliziere, dass einige jüngste politische Reaktionen auf Kapitalzuflüsse Überreaktionen sein könnten.

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