Government And Central Bank Responses To Economic Warfare

Disturbances at the border of two nations easily impact the economy. Weapons might be used far from cities, but the tremors are felt at stock exchanges, petrol pumps, and banks.

Under such conditions, the finance ministry and central bank play important roles in keeping the economy running smoothly.

For instance, after the recent Pahalgam incident, the rupee fell from 83.10 to 84.90 in just four days. Some reports suggested that if the conflict does not stop, it might reach 86.50.

Citizens living near border areas faced a cash shortage in ATMs while the market fell 4.2%. Behind the curtains, a lot is going on to avoid panic.

This blog will help you understand how our government and central bank respond to this economic stress.

1. Stabilising The Currency

Foreign investors prefer to exit the market as soon as tension arises. This sudden withdrawal raises the demand for foreign currency, particularly the dollar. Such sudden movements put pressure on the rupee.

On May 9, the RBI took a step to support the falling rupee. Sources have confirmed readiness to sell dollars from the reserves if required.

The following shows how the rupee reacted during past conflicts:

2. Keeping Banking Services Accessible

It is necessary to keep emergency cash with us in case of conflict. During tensions, people living near border areas often rush to withdraw money.

If a bank fails to operate properly in such a situation, it might cause panic and chaos. Therefore, the Finance Ministry has instructed banks to ensure the normal functioning of all services.

The following are the steps taken to ensure uninterrupted banking:

3. Preventing Cyber Attacks On Financial Systems

Nowadays, war is not limited to battlefields; it has also started hurting cybersecurity. 

You might know that recently, Pakistan-based groups have increased cyber attacks on Indian Financial Institutions.

The following are the actions taken for cybersecurity:

4. Public Assurance To Avoid Panic

In such situations, the government plays a significant role in calming the public. Timely communication is essential to prevent fear-based decisions.

Recently, Financial Minister Nirmala Sitharaman appeared thrice on national TV to ensure that services are safe and there is no need to panic.

Let’s look at the communication timeline:

5. Impact On GDP And Government Response

Due to rising global trade risks and conflict, Moody’s has revised India’s 2025 GDP projection from 6.7% to 6.3%.

Let’s look at the adjustments in GDP projections:

Earlier Projection

Updated Projection

Reason

Moody’s

6.7%

6.3%

Conflict and trade risks

IMF