India, May 12 -- When the war in West Asia started on February 28, India was preparing for elections in four states and a Union Territory. The entrenched populism in India's policy response ruled out any significant action to mitigate the war's economic pain. Now that the elections are over, the economic policy response to the war and its unprecedented supply shock is back on the table. Speaking in Telangana on Sunday, Prime Minister (PM) Narendra Modi hinted at what is coming when he asked people to voluntarily reduce their consumption of petrol-diesel and foreign exchange (which is what buying less gold and taking fewer foreign trips entails). The PM's advice needs to be read in the real rather than populist economic context. The ongoing war shows no signs of ending anytime soon. Unless this changes, hopes that the supply shocks will be transient rather than persistent are fading daily. The depreciation of the rupee - partly because of more expensive oil and partly because global investors are becoming more bearish on India due to reasons such as lack of AI play etc. - is only increasing the pain. The government has two choices: Either pretend that all is well and run a higher current account deficit - this will require more borrowing or drawing down of foreign exchange reserves - or undertake calibrated demand deflation to mitigate the war's external account impact. The PM's comments on Sunday are the wink-wink partof the policy response before the government deploys the nudge-nudge part of it. It can increase petrol-diesel prices or make tweaks to Liberal Remittance Scheme (LRS) rules to force people to cut down on their consumption of energy or foreign exchange. Given the situation facing the economy, and the uncertainty regarding restoration of normalcy in the global energy markets, there is nothing wrong with a calibrated demand deflation. Of course, "calibrated" is the operative word here. For example, the government should be willing to throw the kitchen sink at securing fertiliser supplies for failing to secure these will cause a huge crisis on the food security front, which the country can ill-afford. What will also be important is a consistent rather than confused calibration when the government sets out to do this. It will do well to use the lessons learnt during the pandemic....