The Middle East conflict’s ripple effects are being felt globally and the Indian economy is also increasingly coming under pressure. Prime Minister Narendra Modi’s strong appeal urging citizens to reduce fuel consumption and avoid non-essential imports such as that of gold, is an important signal for citizens to step up.PM Modi has called on citizens to adopt measures aimed at conserving foreign exchange, as the surge in oil prices triggered by the Iran conflict has intensified pressure on the rupee and strained India’s foreign exchange reserves.PM Modi has urged people to reduce fuel and fertilizer consumption while avoiding discretionary spending on foreign travel and gold purchases. In a note released on Monday, Nomura said the remarks could indicate the possibility of a policy shift in the near future, says Reuters in a report.Elevated crude prices pose a significant challenge for India, which depends on imports for nearly 90% of its oil requirements and around half of its natural gas consumption.To stabilize the currency, which has been touching new lows versus the US dollar, the Reserve Bank of India has been selling dollars from its foreign exchange reserves, tightening oversight on rupee arbitrage trades and exploring steps to boost dollar inflows.The currency has now erased all the gains it had made after the Reserve Bank of India introduced measures aimed at curbing speculative activity, and it has emerged as the weakest-performing Asian currency so far in 2026 as elevated crude oil prices continue to inflate India’s import bill.We take a look at the top 10 things about possible government steps in the coming days, the status of fuel prices, and what analysts are saying:Consultations with stake holdersAccording to an ET report, the government is expected to begin consultations with various stakeholders, including industry representatives, on potential steps to address the economic impact arising from the ongoing West Asia conflict.The finance ministry conducted internal discussions on Monday after the Prime Minister’s remarks, particularly amid signs that the conflict could continue for an extended period. Officials, however, indicated that the government is not considering any abrupt measures at this stage, as such actions could unsettle market sentiment. “A range of options is currently under evaluation,” one official said.“There are no indications yet that the conflict is easing. The Strait of Hormuz continues to remain shut, affecting global energy supplies. While the government is committed to maintaining adequate supplies, the current situation calls for greater emphasis on conserving both energy and foreign exchange,” another official said, adding that consultations with stakeholders would be held before any measures are finalised.LRS restrictions? Not for nowGovernment officials told ET that restrictions on outward remittances, including those made under the Liberalised Remittance Scheme (LRS), are not being considered.According to officials, imposing such curbs would send an adverse message to investors. “Investors would hesitate to bring funds into the country if there are concerns about taking money out,” the official said. He added that the LRS route could, in fact, help Indians invest in overseas assets currently available at lower valuations and support the expansion of India’s global presence.Work From HomeOfficials further said there is some discussion around issuing guidance encouraging work-from-home arrangements for sectors and companies where employees do not need to be physically present at workplaces.Several companies have started evaluating whether employees can be asked to attend offices on fewer days each week.Major business groups such as Tata Group and Reliance Industries are reviewing their workplace policies and considering more flexible work models amid concerns over fuel costs and supply disruptions.Fuel prices in focusIndia is among the few countries which have not raised fuel prices since the start of the US-Iran war. That may change since global crude oil prices continue to stay above $100 and India’s crude import bill balloons. The government has already cut excise duty on both petrol and diesel, but oil marketing companies have been bleeding. Several global economists have suggested that the government may eventually need to increase petrol and diesel prices.According to estimates, if crude oil prices rise by $10 per barrel and remain elevated for a full year, India’s import bill could increase by nearly $13-14 billion, equivalent to around 0.4% of the country’s GDP. Diaspora deposits and foreign currency bondsDuring periods when dollar inflows weaken, the central bank has historically introduced schemes aimed at attracting deposits from non-resident Indians, says a Reuters report.In 2013, authorities opened a concessional swap window to encourage foreign currency deposits from overseas Indians, a move that brought in nearly $26 billion.The initiative helped reverse the rupee’s weakening trend, although it came at a cost since the RBI provided subsidised foreign exchange hedges to banks against those deposits.Earlier, in 1998, the government launched the Resurgent India Bonds scheme, under which the State Bank of India issued tax-free foreign currency bonds to overseas investors.Capital account liberalisationIn the past, the Reserve Bank of India has relaxed rules governing overseas borrowing by Indian companies and eased norms related to foreign portfolio investments to attract additional dollar inflows.The central bank had already softened certain external borrowing regulations earlier this year. According to Standard Chartered, India could also explore measures such as loosening foreign investment caps and simplifying regulations for debt investments to encourage more overseas portfolio flows.Analysts further note that policymakers may examine possible changes to capital gains taxation on equity portfolio investments, especially after the Indian stock market witnessed record foreign outflows during the financial year ended March.Steps to restrain imports including gold?To reduce demand for dollars, authorities have previously increased import duties on gold, precious metals and other non-essential goods. Similar action was taken in 2022, when India raised customs duty on gold by five percentage points in an effort to curb demand.Government officials, however, clarified on Monday that no such measures are currently under consideration.Redirecting dollar demand from oil companiesA substantial share of India’s dollar demand originates from oil importers.As a temporary measure in the past, the RBI directly supplied dollars from its foreign exchange reserves to oil marketing companies in order to reduce pressure on the spot currency market.Although the central bank has not introduced a similar mechanism so far, Reuters reported last month that the RBI has encouraged oil refiners to utilise a special credit facility to meet their foreign exchange requirements.Stricter limits on overseas remittancesAuthorities also have the option of reducing foreign exchange outflows by tightening the remittance limits applicable to individuals, which currently allow outward transfers of up to $250,000 annually.India had earlier reduced these limits during the 2013 currency crisis, while regulatory monitoring of overseas remittances was further intensified in 2018.Monetary policy as a defence mechanismIncreasing interest rates remains one of the conventional tools used to counter sustained weakness in a currency, though such a move can also weigh on economic growth.At present, interest rate swap markets are factoring in nearly 70 basis points of rate hikes over the next year. However, economists believe the likelihood of authorities relying heavily on rate increases to attract dollar inflows and stabilise the rupee remains relatively low.
