By Ivashree
The growing conflict in the Middle East is now starting to cast a shadow on the Indian economy, and experts are warning that if the conflict is prolonged, it would reveal the “deep and abiding” ties that India has with the region in the area of economics.
India is the largest recipient of remittances in the world, and in 2024, it is expected to receive $135 billion, according to the World Bank.
A significant share of that money comes from the Gulf. Countries such as the United Arab Emirates, Saudi Arabia, Qatar, Kuwait and Oman together account for more than $50 billion in annual remittances to India. The Gulf region is home to around nine million Indians who earn their living. A slowdown in these economies may have an impact on the job market, which could ultimately affect the remittances that these people send back home.
The other concern for India is the issue of energy security. India imports more than 85% of the oil that it requires. A large amount of this oil is imported from the Middle East. In case of any conflict, the shipping routes that connect the Middle East with the rest of the world, including the Strait of Hormuz, where one out of every five oil barrels is traded, may be disrupted. This could result in an increase in the price of oil, which in turn could increase the trade deficit of the country.
The aviation sector is also feeling the strain. For instance, Indian and European airlines that travel through Indian skies to reach Europe may have to travel through West Asian skies due to the conflict. This would increase travel time and subsequently increase fuel costs, which may be reflected in ticket prices for Indian travelers.
The financial sector has already started to feel the effects of the conflict in West Asia in a cautious manner. The Indian rupee has been witnessing volatility due to apprehensions regarding the effect of increasing oil prices and remittances on India’s balance of trade.
Currently, it can be said that the Indian government is keeping a close eye on the situation. It has been argued that India has managed to diversify its energy imports and build foreign exchange reserves in recent times. However, it has also been emphasized that India’s economic stability is still heavily dependent on developments in West Asia.