PM Modi's austerity call signals possible economic curbs amid West Asia conflict: JM Financial

New Delhi, [India] May 12 : Prime Minister Narendra Modi's call for austerity measures should be viewed as "signalling before actual measures" amid rising external vulnerabilities linked to the ongoing West Asia conflict, according to a report by JM Financial Institutional Securities.

In the report the brokerage said the Prime Minister's remarks urging citizens to conserve foreign exchange reserves by reducing gold imports, fuel and fertiliser consumption, and non-essential international travel were targeted and may precede gradual policy action if geopolitical tensions persist.

"the PM's speech was targeted and should be considered as a precursor to actual austerity measures in a gradual manner if the conflict in West Asia lingers," the report stated.

The report highlighted that oil accounts for nearly 20 per cent of India's total imports, gold for around 9 per cent and fertilisers for about 2 per cent. It added that around 58 per cent of total remittances under the Liberalised Remittance Scheme (LRS) in FY25 were for international travel.

According to the brokerage, India's forex reserves are currently comfortable at USD 690bn, covering 11 months of imports; however, if the supply disruption extends for a few more weeks, then it would warrant tangible measures.

The report noted that crude oil prices have remained elevated above USD 100 per barrel since the start of the West Asia conflict in February 2026, exerting pressure on India's external account and currency.

"The immediate impact was seen in the INR, which depreciated 10% versus the US dollar in FY26, of which 4% weakness can be attributed to the conflict," the report said.

It further warned that if supply disruptions continue, India could face slower growth and worsening current account pressures. "If the supply disruption sustains for a few more weeks, we will stick to our worst case scenario of GDP growth moderating to 6-6.5% and CAD deteriorating to 1.9% of GDP," the brokerage said.

The report also pointed to steps taken by several Asian economies to curb fuel consumption, noting that countries such as South Korea, Indonesia, Myanmar and Vietnam have already urged citizens to reduce fuel usage, while the Philippines has declared a national energy emergency.

On India's likely response, the brokerage said the government may adopt a phased approach instead of immediate sharp restrictions.

"We expect the government to follow a gradual approach; hence, fuel price may be increased in tranches, LRS limits may be reduced temporarily, and duty on gold imports may be hiked as the lean wedding season approaches," the report stated.

The brokerage added that equity markets had already reacted negatively to the Prime Minister's remarks, with benchmark indices declining amid concerns over possible fiscal tightening and higher import costs.

"We believe that the PM's speech should be considered as market signalling before the actual measures are announced in the coming weeks if the conflict continues," the report added.

The report also suggested that the government should focus on increasing strategic petroleum reserves to better manage future supply disruptions.

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