Impact of Israel-Hamas War on Indian Economy

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.
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