Table of Contents
THE CONTEXT: The impacts of the ongoing conflict in West Asia are being felt in markets across the world and India is no exception. In this respect, there is a need to look into the impact on India and how policymakers respond to overcome the situation.
MORE ON THE NEWS
- Indian stock markets have shown weakness, and Foreign portfolio investors pulled out close to Rs 1,000 crores. Crude oil prices rose around 4% as fears of instability in the region gained prominence.
- Continuing conflict in the region is likely to add to the prevailing uncertainty in global markets already weighed down by tighter financial conditions.
ECONOMIC IMPACTS ON INDIA
- Implication on Crude oil prices: As India imports more than 80% of its requirements, one of the particular concerns is an escalation in the conflict engulfing the region could push crude oil prices higher.
- Inflation: Higher crude oil prices could push up inflation above the RBI’s estimate of 5.4% for the full year.
- Current account deficit: Higher crude oil prices and inflation can also have implications for the current account deficit. As per some analysts, the deficit is expected to rise in the second quarter from 1.1 per cent of GDP in the first quarter.
SOME OTHER CONCERNS FOR INDIA
- Impact on Diaspora: Indian diaspora in Israel have got affected due to the conflict and are stranded who needs to be evacuated safely. India has launched Operation Ajay is this regard for their successful evacuation.
- Impact on Remittances: West Asia region accounts for more than 50% of global remittances for India, and conflict in the region can impact the livelihoods and economy of the country.
- Impact on connectivity projects: This conflict may also have implications for the recently announced India-Middle East-Europe Economic Corridor and even older projects as Chabahar port.
THE WAY FORWARD
- Can act as mediator: India has an image of peaceful country and has better diplomatic relations with both sides of the stakeholder countries. In this respect, it should act proactively by playing the role of a mediator for de-escalation of the conflict.
- Ensuring energy security: India should explore other options of energy security by substituting oil for some sort of renewable energy to ensure energy security with minimal impact on environment.
- Maintain enough Foreign Reserve: Foreign reserves of India needs to be enhanced to cope up with the situation of emergency. In this regard, various reserve management practices should be followed.
- Grab the opportunity: The time is quite significant for India to seize the opportunity as it can provide an alternative stable market with an efficient workforce with an increase in instability in the West Asia region.
THE CONCLUSION
The conflict situation in Israel has created turmoil which affects not only the West Asia region but also India which can have significant impact on Indian economy. In this regard, policymakers in India must act proactively to achieve both peace and economic stability.
PREVIOUS YEAR QUESTION:
Q.1 “India’s relations with Israel have, of late, acquired a depth and diversity, which cannot be rolled back.” Discuss. (2018)
Q.2 The question of India’s Energy Security constitutes the most important part of India’s economic progress. Analyze India’s energy policy cooperation with West Asian Countries. (2017)
MAINS PRACTICE QUESTION
Q.1 In what ways the ongoing West Asia conflict can affect the economic situation in India, and how should India respond to this situation?
Q.2 Indian Diaspora has an important role to play in West Asian economy and society. To what extent the use of soft power could help generate goodwill and stability in the region?
Note: Please refer to Mains Focus article of 9th October ‘Toofan al-aqsa jolts west asian geostrategic architecture’ for more detailed analysis.
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