CEA flags US ties, energy as headwinds, calls for strategic buffers | Economy & Policy News

Flagging three near-term headwinds for India — unsettled relations with the US, an uncertain energy market, and what he called the absence of the “so-called” artificial intelligence (AI) play in India — Chief Economic Advisor (CEA) V Anantha Nageswaran emphasised the need for strategic buffers and partnerships with foreign firms with strengths in AI.

 

Unsettled relations with the US may impact capital flows into India, especially from portfolio investors, Nageswaran said on Friday at an event organised by the Public Affairs Forum of India. More broadly, he described US tariffs, sanctions legislation, and trade restrictions as part of “sustained coercion for countries to choose between the blocs”.

  

Nageswaran’s comment comes at a time when the US has passed a law authorising President Donald Trump to impose tariffs of up to 100 per cent on India for its energy purchases from Russia. While the US Congress passed the Lindsey O Graham Sanctioning Russia Act of 2026 last week, the final decision on whether to levy tariffs, and at what rate and on what products, remains with Trump.

 

Simultaneously, India is engaged with the US on a trade deal, the terms of which were “almost done and dusted”, Union Commerce Minister Piyush Goyal said on Thursday. New Delhi is now waiting for Washington to devise a mechanism to ensure that India gets a tariff edge under the deal over other competing economies. Goyal has reiterated this position several times in the past, including on Thursday.

 

“Given India’s location, size, and geography, India cannot afford to choose. The answer is therefore hedging… and hedging will have significant cost. And that has to be factored in in our decision-making, both in the public and the private sector,” Nageswaran said.

 

The CEA further said that rising bond yields in advanced economies would make investors less willing to send capital to emerging markets, and “there will be pressure on capital mobilisation for a while”.

 

He added that the narrowing gap between US and Indian bond yields, though welcome, could itself deter investors, who still expect a premium of 200–300 basis points. Markets will take time to recognise that rich-country debt has become riskier, he said.

 

Nageswaran cautioned that even investor-friendly reforms may not show quick results in this environment.

 

“You can do everything right, but the public will see that there is no result and therefore keep clamouring for more,” he said, urging critics to account for a shifting global context before judging policy.

 

He added that trade has been weaponised well beyond the US, pointing to export licensing, supply-chain chokepoints, and similar moves by China and the European Union.

 

Nageswaran also said that the challenges surrounding crude oil extend beyond prices to availability, freight, and insurance costs. Rising costs of copper, silver, and polysilicon will also make the shift to renewables more expensive, he added.

 

Pointing out that India imports between 90 per cent and 97 per cent of its copper concentrate, he said that to ensure some sort of insurance against a global disruption, India needs six to nine months of strategic supplies. He said that such buffers require a “fiscal resources commitment”.

 

On technology, Nageswaran said India does not need to make the most complex products. Instead, it must identify the most indispensable ones and be prepared to make them at a global scale.

 

He pointed to small companies in Japan, Germany, and Western Europe whose products are essential to the semiconductor and AI ecosystems, many of which are struggling because they have no visible succession. “The important thing is to either acquire them, get a stake in their intellectual property (IP), enter into technology transfer agreements — either inorganically or organically — or collaborate with them,” he said.

 

“If we don’t make our bid to become part of their ecosystem, then they will end up getting into the hands of the companies which will strip them, take the IP and sell off the rest. And we will have lost the opportunity,” the CEA said.

 

Investing in manufacturing is inevitable because “the world will not supply you”, he said, despite the challenge posed by China’s scale. Since imports will keep rising with growth, India will have to export more and court foreign direct investment much more and much better than it has done before, alongside efforts to produce more at home.

 

He also cautioned that India cannot count on its demographic dividend. Pressures on young people’s mental and physical health, along with changing skill needs, mean the 1.5–2 percentage points a year that demography typically adds to growth “cannot be taken for granted”.

 

On AI, he said he “deliberately” used the phrase “so-called”. He observed that India has been cited for innovative approaches to regulating AI. He also acknowledged that India’s IP is “not quite there”, but said, “it will come”. Indian work on Edge AI applications could look very different “12 months from now”, he said.