Impact of Israel-Hamas War on Indian Economy
- Indian Analysts are closely monitoring the impact of the Israel-Hamas war on the Indian economy.
- The potential challenge of crude oil supply disruptions in West Asia is a major concern.
- The situation is still in flux, and it’s too early to provide a definitive assessment.
- The conflict could potentially escalate and involve multiple nations in West Asia, further complicating the situation.
- Supply cuts by OPEC+ have already led to a global increase in crude oil prices, and this could worsen with an extended conflict.
Direct Economic Impact on India
- The direct economic impact on India is expected to be limited.
- India’s trade with Israel is relatively small, with exports to Israel at $8.5 billion and imports at $2.3 billion in FY23.
- This limited trade exposure mitigates the immediate economic fallout from the conflict.
Oil Price and Currency Impact
- The economic impact in India is likely to be seen first through changes in oil prices and currency exchange rates.
- Higher oil prices could affect the Indian economy, leading to increased fuel costs and inflationary pressures.
- The exchange rate of the Indian rupee may also be adversely affected by the volatility in global markets.
Reserve Bank of India’s (RBI) Likely Response
- RBI is expected to closely monitor the evolving situation.
- It is unlikely to take immediate action but will remain vigilant.
- Bond yields may stay high as RBI maintains tighter system liquidity through tools like open market operations (OMO) sales.
- Inflation impact is expected on the Wholesale Price Index rather than the Consumer Price Index.
- Retail fuel prices may not change immediately unless the government absorbs the increased costs.
Government Mitigation Measures
- The Indian government may consider taking steps to control the prices of essential commodities.
- These measures could be implemented if the conflict in West Asia escalates, resulting in new supply bottlenecks.
Impact on Gold Prices
- Gold prices are expected to rise due to the war.
- Indian Analysts note an increase in gold prices in response to the ongoing conflict.