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:

6. How Do Stock Markets And Investors React?

Stock markets react quickly to tension on the borders, but they might also recover from the initial shock in some 

time.

Let’s look at the market reactions to the past conflict:

7. Inflation Management During Conflict

You might know that most imports are disrupted by war-like situations. As soon as oil imports are affected, petrol prices start to rise, leading to inflation.

The government has released additional food stocks to keep prices under control. To manage the situation, the RBI has increased the repo rate by 0.25%.

Let’s look at the inflation control duringthe  conflict:

8. Supporting Vulnerable Sectors

The government has provided quick support to sectors most affected by conflict risks. Government has provided tax breaks to defence manufacturers.

The following are the emergency economic allocations:

Final Thoughts

The coordinated steps by the Finance Ministry and Reserve Bank have ensured that the nation’s system works smoothly under pressure.

They have ensured that the currency, financial services, and essential supplies remain stable.

The stock market has become unstable, but investor confidence and public calm have largely been maintained.

The quick and strong communication and support from the government and central bank show how effectively they are working behind the scenes to manage the nation's current situation.

FAQs

1. Are ATMs safe to use during wartime?

Yes, the Finance Ministry has made sure of proper cash supply and backups.

2. Will GDP growth stop completely due to war?

No, but some slowdown is expected.

3. Is it safe to use UPI during the war?

Yes, RBI and NPCI are monitoring them closely.

4. How will RBI control the falling rupee?

By selling or buying dollars and changing interest rates.

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