When demonetisation disrupted economic activity, global oil prices were low. When the banking crisis slowed investment, consumption remained resilient. During the pandemic, unprecedented fiscal and monetary support cushioned the shock. Even during periods of high inflation after the Russia-Ukraine war, strong tax revenues and robust services exports helped maintain stability.

Today, that cushion is disappearing. India is entering a period in which multiple vulnerabilities are surfacing simultaneously. Oil prices are rising because of the West Asia conflict. The monsoon outlook is deteriorating. The Balance of Payments has slipped into deficit. Capital inflows are weakening. Rural demand remains fragile. And the government's fiscal room is considerably narrower than it was during previous crises.

Taken together, these developments could constitute the most significant political-economic challenge of the Modi era. The danger is not that India faces a crisis similar to 1991. It does not. Foreign exchange reserves remain substantial. Banks are healthier than they were a decade ago. Corporate balance sheets are stronger. Services exports continue to generate large foreign exchange earnings.

The danger is that India may be entering a period of slower growth and higher inflation simultaneously — a combination that policymakers have largely avoided since 2014.

That distinction matters. High inflation can be politically managed if growth remains strong. Slow growth can be tolerated if prices remain stable. But when inflation rises while incomes stagnate, governments find themselves squeezed from both directions.

This is precisely the risk emerging today. The first challenge is external. For years, India's economic managers relied on a simple formula. A large trade deficit could be financed through remittances, services exports and foreign capital. The arrangement was not perfect, but it worked.

Now the equation is changing. The Reserve Bank of India's latest report shows the country's Balance of Payments has slipped into a deficit of more than $30 billion. More worrying than the deficit itself is the reason behind it. Capital inflows are slowing. Foreign direct investment has weakened. Portfolio investors are becoming more selective. Global money is no longer as abundant as it was during the era of ultra-low interest rates.

This creates a new vulnerability. India imports nearly 90 percent of its crude oil. Every sustained increase in oil prices widens the current account deficit, pressures the rupee and feeds inflation. The government can absorb some of the shock. The RBI can intervene in currency markets. Neither can eliminate it.

The second challenge is domestic. A weak monsoon is not merely an agricultural problem. Economists often underestimate its political significance. Agriculture contributes only around 15 percent of GDP. Yet nearly half the country's workforce depends on it. More importantly, rural India remains the backbone of electoral politics.

The IMD's revised forecast of below-normal rainfall should therefore be viewed not simply as a weather event but as a macroeconomic risk.

India has seen this movie before. The drought of 2002 sharply slowed growth. The deficient monsoon of 2009 pushed food inflation into double digits. Back-to-back weak monsoons in 2014 and 2015 depressed rural demand and farm incomes. Today's economy is more diversified and more resilient. Yet some realities have not changed. A poor monsoon raises food prices. Higher food prices reduce household purchasing power. Lower farm incomes weaken consumption. Weaker consumption eventually affects manufacturing, housing, retail trade and employment.

The political implications are equally significant. For much of the Modi era, welfare transfers and infrastructure spending compensated for weakness in rural incomes. But there are limits to how long governments can substitute transfers for sustained income growth.

This is where the third challenge emerges. The government's room for policy manoeuvre is narrowing. During the pandemic years, fiscal expansion was unavoidable. Since then, New Delhi has emphasised fiscal consolidation while simultaneously increasing capital expenditure. That strategy has supported growth and reassured investors.

However, the combination of higher oil prices and a weaker monsoon could create competing demands on the exchequer. If food inflation rises, pressure will mount for additional welfare spending. If fertiliser prices increase, subsidy requirements could expand. If rural distress deepens, demands for higher support prices and income transfers will intensify. The government may soon face difficult trade-offs between fiscal prudence and political necessity.

The fourth challenge concerns the Reserve Bank of India. The RBI is confronting a problem that monetary policy was never designed to solve. Interest rates cannot produce rainfall. They cannot lower crude oil prices. They cannot end geopolitical conflicts.

Yet inflationary pressures from food, fuel and currency depreciation may force the central bank into a more hawkish posture than it would otherwise prefer. This is the classic dilemma of political economy. The tools available to policymakers address demand. The shocks confronting them originate on the supply side. The result is often policy frustration. There is another, deeper issue that deserves attention.

For more than a decade, India's economic narrative has been built around resilience. Every external shock has been met with the argument that India is better positioned than most emerging economies. In many respects, that argument remains valid. But resilience is not the same as immunity.

The country's dependence on imported energy remains extraordinarily high. Agricultural production remains heavily dependent on rainfall. Private investment remains uneven. Employment growth remains a concern despite strong headline GDP numbers.

The current convergence of shocks exposes these structural vulnerabilities more clearly than at any point since 2014. That is why Prime Minister Modi's recent appeal for fuel conservation, reduced gold purchases and restraint in discretionary spending deserves attention. Such messaging is unusual because it reflects a recognition that the challenge ahead cannot be addressed through government action alone.

Economic management is entering a more difficult phase. The next few months will determine whether India experiences a temporary slowdown or something more persistent. Much will depend on factors beyond New Delhi's control — rainfall, oil prices and global capital flows. Yet the larger question is political.

Can the government maintain growth while controlling inflation? Can it protect rural incomes without abandoning fiscal discipline? Can it attract foreign capital while preserving macroeconomic stability? These are not merely economic questions. They are questions that will shape the political economy of Modi's third term.

For the first time since coming to power in 2014, the Prime Minister is confronting a challenge that is not defined by a single event or a single policy decision. It is a convergence of structural vulnerabilities, external shocks and domestic uncertainties. That makes it not only an economic test. It may well be the defining governance test of the Modi era. (IPA Service)