November 8, 2023

New Delhi, India

Israel-Hamas Conflict

The ongoing conflict between Israel and Hamas has raised concerns globally, with reverberations expected to affect India’s growing economy. The escalating tensions in the Middle East have prompted a closer evaluation of how this conflict might influence India’s economic landscape.

Israel-Hamas Conflict and India’s Economic Vulnerability

The conflict’s repercussions have far-reaching implications for India, primarily due to its heavy dependence on oil imports from the Middle East. Although India has diversified its oil sources to include Russia since the 2022 Ukraine invasion, a substantial portion still arrives from the Middle East. Recent figures reveal that 44% of India’s oil imports between April and September 2023 originated from the Middle East, according to industry sources shared by Reuters.

Key Insights and Economic Ramifications

Experts fear that elevated oil prices due to the conflict may escalate import costs and subsequently affect commodity and food prices in India. While a recent World Bank report suggested a limited initial economic impact if the conflict doesn’t widen, the scenario could quickly change if tensions escalate further.

Forecasted Projections Amid Geopolitical Uncertainty

The World Bank’s India Development Update anticipates a growth rate of 6.3% for fiscal year 2023-24, down from the earlier projection of 7.2%. The conflict poses a risk to this projection, especially concerning inflation and growth estimates.

India’s Fiscal Deficit Reaches ₹7.02 Lakh Crore in H1 FY24; Targets Remain Challenging

Strategies and Precautions to Mitigate Economic Risks

India’s Reserve Bank has set expectations, pegging crude prices at $85 per barrel for the upcoming financial year, projecting potential inflation hikes and growth impacts due to oil price fluctuations. Economists and analysts emphasize the need for preemptive measures to manage a possible surge in headline inflation.

Strategies for Economic Stability

Understanding the potential impact of the Israel-Hamas conflict on India’s economy is imperative. The nation’s policymakers are urged to consider diversified oil sourcing, and potential risk mitigation strategies to ensure stable growth, manage inflation, and sustain a balanced current account deficit.

Amid geopolitical uncertainties and the evolving nature of the conflict, it is vital for India to adopt proactive measures to safeguard its economy and cushion against potential economic shocks arising from the Israel-Hamas conflict.