- 6 weeks ago
As West Asia war triggers severe economic repercussions on global markets and India, experts share their perspective on how to deal with its impact on the economy.
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00:00Good evening, you're watching NewsTrack with me, Maria Shaquille.
00:02The war in West Asia shows no signs of ending.
00:06With tensions escalating, global economies are feeling the strain.
00:10And India is no exception.
00:12Rising food, oil and gas prices, coupled with potential disruptions through the Strait of Hormuz,
00:18are adding immediate pressure on India's import bill and inflation outlook.
00:23The ongoing Iran conflict is now rippling across supply chains,
00:28pushing up input costs, unsettling the currency,
00:32and is raising concerns over energy security within the country.
00:36The crisis in India is also exposing structural vulnerabilities
00:41from energy dependence to supply chain resilience,
00:44prompting urgent questions about how prepared India is
00:48to navigate prolonged geopolitical shocks like this,
00:51and whether this moment actually calls for faster diversification,
00:55stronger domestic capacity, and sharper economic safeguards.
01:00Before I bring in the guests to discuss the real impact of the war on India,
01:04here's a report.
01:11A war in West Asia, but a global crisis.
01:14The impact of the conflict on India is deepening,
01:17and it's no longer limited to cooking gas and petrol.
01:21Signs of stress are already visible.
01:25India's manufacturing PMI has slipped to 53.9 in March,
01:29the lowest in nearly four years, as rising input costs.
01:34Shortage of raw material and global uncertainty begin to weigh on production.
01:39Inflation risks are building again.
01:42Prices of key inputs from metals to chemicals and fuel
01:45have seen the sharpest spike since August 2022,
01:50raising the likelihood of costlier goods in the coming weeks.
01:53But the biggest pressure point remains energy.
01:57India imports more than 80% of its crude oil.
02:00And with Brent crude hovering around $100 per barrel,
02:05the country's import bill is set to rise sharply.
02:09The rupee is already under pressure,
02:11trading close to new record lows,
02:13making imports even more expensive.
02:16Growth projections are now at risk.
02:18India's expected 7 to 7.4% of GDP growth
02:23for financial year 2027 faces downside pressure
02:27due to elevated energy prices and supply chain disruptions
02:30linked to US-Israel war on Iran.
02:35The government has already begun responding.
02:38Excise duty cuts on petrol and diesel to contain inflation.
02:42Steps are being taken to stabilise the rupee
02:44by tightening forex market exposures.
02:47And a closer monitoring of fuel and fertiliser supply chains.
02:51But the impact is spreading beyond core sectors.
02:55India's $6 billion bottled water industry
02:58is seeing price hikes due to higher packaging and transport costs.
03:03Energy-intensive industries are also taking a hit.
03:07In Gujarat's ceramic hub,
03:09production has slowed as gas prices surge,
03:12forcing units to cut operations.
03:14And there's a strategic risk emerging.
03:18Nearly 60% of India's internet traffic
03:21passes through undersea cables
03:23near the Gulf and Red Sea.
03:25With rising threats in the region,
03:27any disruption could impact digital services,
03:30banking networks and global connectivity.
03:35From inflation to industry,
03:38from currency to connectivity,
03:41the West Asia war is now testing
03:43India's economic resilience.
03:47Bureau Report, India Today.
03:50Let me go straight to our guests
03:52who are joining me tonight.
03:54Shankar Ayer, political economist,
03:55author and columnist.
03:57We also have Prachi Mishra,
04:00professor of economics,
04:01director and head of the ISAC Center
04:03for Public Policy at Ashoka University.
04:06Shankar Ayer, let me begin with you.
04:08If this conflict drags on
04:10for the next few months,
04:12where does the first visible crack appear in India?
04:16Farmer incomes, industrial activity
04:18or financial markets?
04:20And how quickly does it start
04:22hitting overall growth?
04:25Well, we can see the cracks as it is now
04:28in the real economy in terms of...
04:32So India is facing both an issue,
04:35double whammy of availability and pricing.
04:39So availability and affordability in the economy
04:42translates, transmits to the real economy.
04:44In the sense that one's gas...
04:46So petroleum products are responsible
04:49for 6,000 products from heart valves
04:54to hydrocarbons used for fertilizers and stuff.
04:57So there are many sectors from packaging,
05:01from, for instance, in Madhya Pradesh,
05:04the last one week they have not been able
05:06to procure food grains
05:09because of lack of bags to take them into.
05:12So that is because the PDP, HDP,
05:16all those bags are not produced
05:18because the raw material is not available.
05:20In textile units, the same story
05:22for dyes and chemicals.
05:25This will seep into the pharmaceutical sector
05:27because even an humble product like paracetamol
05:30requires, you know, hydrocarbons.
05:34So this is what I call a molecular contagion.
05:37So this will seep through.
05:39We will see it playing out.
05:41If this war lasts more than April,
05:44we will see extensive damage.
05:47And even if it ends, Maria, in the next two weeks,
05:52the impact will be felt for the...
05:57This is because the incomes, the disruption,
06:00the migrant labor, which has gone back.
06:03This is the peak season of construction.
06:06And you don't have labor in most cities.
06:09This is the peak season for production
06:11of manufacturing goods
06:13because this is when people and companies
06:15are unable to deal with the situation.
06:17And so there is a genuine fear.
06:20And on top of it all is the crash in the rupee.
06:25I mean, it's gone down from somewhere near 89 to 95,
06:29and now the RBI has taken some steps.
06:32But nobody's quite sure where it goes.
06:34If Tauji Trump does something crazy tomorrow,
06:37then, you know, it will have its own repercussions.
06:40Now, you asked about the financial sector.
06:42Now, each of these businesses is borrowing from the banks
06:49and NBFCs, and each of these sectors
06:52is a depositor in the banks and NBFCs.
06:55So this is, again, a double value.
06:57Okay. I'm coming back to you in just a quick...
07:00First of all, let me take an opening comment also from Prachi.
07:04Prachi, India is heavily import-dependent for fertilizers.
07:07Let's put the spotlight on farmers here.
07:10If supply chains are disrupted,
07:13are we looking at higher input costs for farmers
07:17because of the, you know, season,
07:20the farming season which is going to begin?
07:21And could that then translate into food inflation
07:24and pressures on rural incomes in the coming crop cycle,
07:29something that has been under control in India so far?
07:32The food inflation is very much in control.
07:35So, Maria, pleasure to be here.
07:38I think let's step back.
07:39I think Shankar mentioned, you know,
07:42let's think what the nature of the shock is.
07:44You know, analysts are comparing it to COVID,
07:46but this is a different shock.
07:47You know, COVID was...
07:48It originated from a health shock.
07:50And the impact on the economy, remember, in COVID,
07:53occurred through direct impact on consumption and production.
07:57In fact, my research is suggesting that, you know,
07:59globally, there's not much scarring from COVID.
08:02This time, it's very different.
08:04It's an upstream shock.
08:06And the reason I'm calling it upstream is exactly what you mentioned.
08:10It strikes intermediate inputs, and that powers everything else.
08:16And that escalates into, you know, everything else.
08:18And I think for us, I think the more useful comparison, for example,
08:23is the 1979 OPEC embargo or the Iranian revolution.
08:29And let me tell you, few people are aware that, you know,
08:32the Iranian revolution, you know, after 1979,
08:36India turned to the IMF in 1981 for the then largest loan of 5 million SDRs,
08:42the special drawing rights.
08:44Coming back to your question, I think the impact, the macroeconomic impact,
08:49whether it's the impact on inflation, whether it's the impact on the current account,
08:53whether it's the impact on fiscal, depends on the duration.
08:57And here, and maybe Shankar mentioned as well,
09:00we have to distinguish between de jure duration and the de facto duration.
09:05So how long will the shock last?
09:07I think, honestly, you know, nobody...
09:09Forecasters admit that they do not know.
09:11But even after the conflict ends, I think energy market normalization
09:16can take months, if not days.
09:19Think about, you know, tanker routing, insurance premiums,
09:22refinery schedule, all have their own momentum.
09:25So I think the impact on inflation, food inflation, etc.,
09:29I think will depend on how long the shock lasts.
09:33Our baseline, my team's baseline projections, you know,
09:36if the de facto shock wanes by, say, June,
09:39I think the macroeconomic damage will be manageable.
09:43However, if it escalates to the rest of the year,
09:48in de facto terms, I think then the impact will be much more severe.
09:52And then there you could have a situation where, you know,
09:55CPI inflation could reach the 4% target,
09:58even with, you know, limited consumer pass-through.
10:00I'll just say one quick thing.
10:02I think this time is different also because of our initial conditions.
10:07Remember that, you know, we are entering this crisis
10:10with much better initial conditions.
10:12You can think about, you know, growth, you can think about inflation,
10:16you can think about external sector.
10:19So that gives us some buffer.
10:21But remember that, you know, the buffer is not unlimited.
10:23Okay, so Shankar, I am coming back to you.
10:27Let's look at the Indians here in the Gulf.
10:31With this uncertainty continuing,
10:34how serious is the risk to remittances and Indian jobs overseas?
10:39And could that then trigger a quiet demand slowdown in rural
10:44and small towns of India, especially in remittance-dependent states?
10:51Maria, if there is a problem tomorrow, day after,
10:55if there is an attack on the Gulf countries
10:58and they are forced to evacuate or jobs are lost,
11:01demand constraint will be the least of our problems.
11:05We will have 10 million people looking for jobs,
11:09looking the fear, the panic that this will set off
11:12will be unbelievable.
11:14I mean, you know, we've seen some of it when the OPEC thing happened
11:19and Venkatraman, who was the finance minister,
11:22went to IMF and got a bailout.
11:25Thereafter, in 1990-91, we had to switch,
11:29you know, allow U.S. planes to refuel in India
11:33and that's when the gold pledging happened
11:36and India had to sort of go to the IMF again.
11:38This time, with that, all the macros which are in our favor
11:44are not helping us sustain the rupee at a certain level.
11:49And so we don't know, there are many unknowns here.
11:53So if the job losses happen in the Gulf countries,
11:57if those people come back to, say, Sivan or Trichur
12:01or to Trichnapalri,
12:02there will be a serious social, political impact of it.
12:07The economic impact of it is a secondary story.
12:10It's a second-order issue.
12:12And so we hope that that won't happen.
12:15I think the one...
12:18So Shankar, you are saying that even that social impact
12:21is likely to play out only if the war continues
12:25the whole of April that we are in, this month.
12:28Yes. Yeah.
12:29So, you know, there is an unknown red line in this.
12:34At what point do Indians start thinking of leaving?
12:38For instance, that not many people will admit it,
12:41but people sort of, even in Israel,
12:44are sort of going out via Egypt.
12:46In Dubai, they are going to other countries
12:48towards Turkey and coming out.
12:50So there is a certain amount of exodus.
12:53All those gold visa fellows who were there,
12:55as the 500,000 people who had got gold visas,
12:58I don't know how many of them are still there in Dubai.
13:01So that's an interesting story to follow up.
13:04But if there is a sustained attack on the Gulf countries,
13:09A, you will lose the supply of oil and gas.
13:13Qatar already has said that 40%, 50% of its gas production
13:18is shut down.
13:18The second is these Gulf countries are also markets for us
13:22around $20, $25 billion worth of exports
13:26is sent to these countries.
13:28The third is the job and the remittances picture.
13:31Now, if the remittances fall,
13:33you have to think about a trifecta here.
13:37The FIIs have sold 1 lakh crore's worth of stocks
13:41in the last one month.
13:43The FDI, net FDI is negative.
13:48And if remittances drop,
13:50our current account situation will be tight.
13:54And we will have to do extraordinary measures.
13:57But I will sort of end with this, Maria.
14:00In India, crisis is a feel-good factor
14:04because that is the only time when reforms happen.
14:07Yes, and it's an opportunity.
14:09So, when we look at the picture as of now,
14:13the showing stress,
14:14which are the sectors which are already showing stress,
14:18Prachi?
14:19MSMEs, construction, auto,
14:22or export-linked industries?
14:28Yeah, look, I think, you know,
14:31again, I would emphasize that, of course,
14:35you know, there's a macroeconomic impact
14:38and that will feed into certain sectors.
14:40And we have seen, actually, government policies
14:42to be quite agile in terms of supporting
14:46particular sectors.
14:48I think, too, overlooking,
14:50I would like to mention, you know,
14:51to add to what Shankar said, Maria.
14:53There are also too often overlooked
14:56cushioning effects here.
14:58Remember that, you know,
14:59our customs duties are ad valorem.
15:03And, you know, we actually,
15:05we have, you know,
15:06ad valorem customs duties
15:08can actually improve the fiscal.
15:10And India, remember that India
15:12is also the fifth largest
15:13refined petroleum exporter,
15:16which means that, you know,
15:18higher crude oil prices
15:19are partially offset through export revenues.
15:22That's why it's all not,
15:24at least in the short term,
15:26I think there are offsetting factors
15:28which actually drive some
15:29of our rather benign projections.
15:32If, you know,
15:33if de facto war situation,
15:36de facto, the reason I say de facto
15:38for the reasons I explained,
15:39that is, you know,
15:40even after the conflict ends,
15:42you know, there can be energy markets
15:43can be under pressure,
15:45normalization can take time.
15:46But I think if de facto war ends
15:48in, by June,
15:50I think we are still
15:51in a manageable macroeconomic scenario
15:54and that implies for sectors as well.
15:57However, in the escalation scenario,
15:59if it escalates beyond,
16:01you know, mid of this year,
16:03I think then,
16:04I think there I see
16:05a more serious situation.
16:07And there, I think the effects
16:09can be quite non-linear.
16:11And let me give you an example.
16:12People, you know,
16:13we live in a world of integrated
16:14global value chains, right?
16:16So crude oil, for example,
16:18it is an input into our exports
16:20of refined products.
16:22So therefore,
16:23as crude gets more and more expensive,
16:25it will have a ripple effect.
16:27And that will have an adverse impact
16:30not only on, you know,
16:32you know, you know, imports,
16:34but it will offset the cushioning effect
16:37on refined exports.
16:38So the cushioning effect
16:40we have in the short term
16:41will slowly wane
16:43because of these ripple effects.
16:45And, you know,
16:46particular sectors, of course,
16:47will get more affected.
16:48So I would think,
16:49I think if de facto war
16:52continues beyond mid-year,
16:54I think then there is,
16:56you know,
16:57the situation will be harder to manage.
17:00Okay.
17:01Macroeconomic with implications
17:02for certain sectors.
17:03And of course,
17:04there are unequal impacts
17:05across states,
17:06as, you know,
17:06Shankar mentioned
17:07in terms of remittance.
17:08And remember that remittance
17:10is also important
17:10for the current account.
17:11Remittances are a cushioning effect
17:13for our current account deficit.
17:16You know,
17:16our current account deficit
17:17is low because,
17:19you know,
17:19partly due to remittances.
17:20If remittances get affected,
17:23you know,
17:23that will have
17:24an adverse impact
17:26on macroeconomy
17:27and an uneven effect
17:29across states.
17:30For example,
17:31Kerala would be
17:31definitely more affected.
17:33Yeah.
17:33Shankar,
17:33let me give you
17:34the last word
17:34on the show tonight.
17:35So you say that,
17:37you know,
17:37every crisis
17:38is an opportunity here.
17:40What can the government do?
17:42A quick response
17:42in one minute, please.
17:45I think India
17:46should start doing
17:47the things
17:48that are needed
17:48to be done
17:49so that we don't
17:50face this again.
17:51They cannot change
17:53what is happening
17:54on the ground
17:54beyond the incremental
17:57access of fertilizers,
17:59immediate goods,
17:59transmission of credit
18:01to sectors
18:02and stuff like that.
18:04What this offers us
18:05is to think about
18:07how you will build
18:08a $10 trillion economy
18:10without energy security.
18:12And that is what
18:13they should focus on,
18:14should focus on solar.
18:15We should also ramp up
18:18gigawatts.
18:19So, you know,
18:19we should move
18:20from this idea
18:21of barrels-fueled economy
18:23to gigawatts-fueled economy
18:25and there are many things
18:26that can be done.
18:28But important,
18:29let's plan
18:30that this doesn't
18:31happen again.
18:32Certainly.
18:33Shankar Aya,
18:34Prachi Mishra,
18:35really appreciate your time.
18:36Thank you for joining us
18:37and sharing your thoughts.
18:40Thank you, Maria.
18:43Earlier,
18:43I spoke with Dr. John
18:45Asfakya Anakis,
18:46a prominent
18:47Riyadh-based economist
18:48about the economies
18:49and sectors
18:50that are facing
18:51or are likely
18:52to face a significant
18:53global impact.
18:54I'm leaving you
18:55with this exclusive conversation.
18:57Thanks so much for watching.
19:04As the war drags on
19:06and Donald Trump
19:07signals there is
19:08no immediate end in sight,
19:10the economic impact
19:11is now spreading
19:12well beyond oil,
19:14hitting trade,
19:15aviation,
19:16manufacturing,
19:16and financial markets.
19:18The key question
19:19tonight is
19:20which economies
19:21and which sectors
19:22are taking the biggest hit
19:24from a prolonged conflict.
19:26Joining me on the show tonight,
19:27Dr. John Asfakya Anakis,
19:29who is a chief economist
19:30and head of research
19:31at the Gulf Research Center.
19:34John,
19:34how would you describe
19:35the overall economic impact
19:37of this war now?
19:38Is it still contained
19:40or already spilling
19:41across sectors globally?
19:45I believe it's gradually
19:47spreading.
19:48We're seeing the beginning
19:50of what seems to be
19:52a recession.
19:53We are beginning to see
19:55higher inflation.
19:56We're beginning to see
19:57queues of people
20:00going into
20:02a fuel shortage situation.
20:04We're beginning to see
20:06what are the elements
20:08of a global recession.
20:10The longer this war
20:11drags out
20:12and the longer
20:13the strait is shut,
20:15the more are the difficulties
20:16that Asia,
20:17as well as Europe,
20:19and the United States
20:21is going to face.
20:22But particularly Asia,
20:24because Asia
20:25needs the oil
20:27out of the Gulf
20:28and they're getting
20:29very little.
20:31Which economies,
20:32according to you,
20:33are most exposed
20:34right now?
20:36Energy importing countries
20:38like India and Europe,
20:40or are emerging markets
20:42facing a deeper shock?
20:45Definitely the first
20:47hit countries are those
20:48that are in emerging markets.
20:50You mentioned India,
20:51for sure.
20:52Shortage in terms
20:53of cooking oil,
20:54you see it every day
20:55in India.
20:56But also Pakistan,
20:57heavily impacted.
20:59Philippines,
21:00Indonesia,
21:01you're going to see
21:02other Asian countries
21:03facing the difficulties.
21:05Australian natural gas
21:06is not enough.
21:07we need more natural gas
21:09for Asia.
21:10But also,
21:11you will see it spread
21:13throughout the rest
21:14of the Middle East.
21:15Egypt is facing a crisis.
21:17Jordan is going
21:18to face a crisis.
21:19And even poor
21:20and destitute Yemen
21:22is going to be facing
21:24a huge crisis.
21:25So,
21:25the have-nots
21:26are facing it now.
21:28But the haves,
21:29the developed world,
21:30is going to face it
21:31very quickly
21:32because they already
21:33see it in terms
21:34of higher fuel costs.
21:35And remember,
21:37we're still at the beginning
21:38of this crisis.
21:39If we go into
21:40the summer months
21:41with the issue
21:43of the strait
21:44being shut,
21:45then we're going
21:46to go into
21:46a deep recession
21:47in the winter.
21:49Let's go beyond oil.
21:50Shipping lanes
21:51are disrupted.
21:53Insurance costs
21:54are up already.
21:55How severe
21:56is the hit
21:56to global logistics
21:58and trade flows?
22:01Well,
22:02I'll give you
22:02an example.
22:03You're absolutely
22:04correct to indicate
22:05towards that direction.
22:07Fertilizers.
22:08They're coming
22:09out of the Gulf.
22:10Principally,
22:11urea,
22:12fertilizers,
22:13and all the other
22:14components
22:15that go into
22:16the agricultural sector.
22:18How are we going
22:19to grow
22:19our crops
22:22if we don't
22:23have fertilizer?
22:24That will be
22:25a major issue
22:25for Asian countries,
22:26but also
22:27for developed countries
22:29that are farming
22:30the world.
22:31Then we're going
22:31to see it
22:32in our food table.
22:33In our food table,
22:34if we have
22:35rising costs
22:37for our everyday rice,
22:39our everyday products,
22:40our bread,
22:41our wheat,
22:42we're not going
22:43to be able
22:43to manage.
22:44And you know,
22:45over the last
22:46three years,
22:46we have been facing
22:47with increasing prices.
22:50Inflation has become
22:51a post-COVID reality
22:53because we unleashed
22:55this paper money,
22:56but also money
22:57into the economies.
22:59And now,
22:59we're facing
23:00with a very high
23:02inflation
23:02for a long time.
23:04And the result
23:06is that
23:06the world economy
23:07cannot sustain
23:08another food crisis,
23:10another inflation crisis,
23:12on the back
23:13of what we faced
23:13immediately after COVID.
23:15So there is
23:16a huge supply issue
23:17that is being created.
23:19If we go
23:20into the coming months
23:22with supply and logistics,
23:24then we're going
23:25to see it
23:25as consumers.
23:26I'll give you
23:27another example.
23:28Jet fuel
23:28is not readily
23:29available in Asia.
23:30That's right.
23:31Ticket prices
23:31have gone up
23:32by 600%
23:33already in Asia.
23:35So people
23:36will have to
23:36make due
23:37less flights,
23:39less airlines.
23:40Airlines are going
23:40to be losing money.
23:42Jet fuel
23:43is going to be
23:44a competitive fuel,
23:45and there will be
23:46great competition
23:47between the Asian market
23:49for jet fuel
23:50and the European market
23:52for jet fuel.
23:53And the higher bidder
23:54and the highest bidder
23:55will end up
23:56taking that,
23:57and it's not going
23:58to be the have-nots.
23:59It's going to be
24:00the has.
24:01Okay.
24:01So my last question
24:02then is what happens
24:03to another sector,
24:04crucial sector,
24:05which is manufacturing,
24:06and sectors like
24:07automobiles
24:08that depend on
24:10complex global
24:11supply chains.
24:12Are we looking
24:13at production
24:14slowdowns
24:15and cost spikes?
24:18Absolutely.
24:19And we have seen
24:21this during COVID.
24:22At that time,
24:23the issue was
24:23the microchips
24:24and the ability
24:25to produce
24:28products that went
24:29into vehicles,
24:30be it electric
24:31or otherwise,
24:33combustion engine.
24:34Today,
24:34the main issue
24:35is that if we don't
24:36have the components,
24:38which is plastic,
24:4060 to 65%
24:41of an automobile
24:42is made out
24:43of plastic.
24:44The dashboard
24:44is made out
24:45of plastic.
24:45That becomes
24:46an issue.
24:47I'll give you
24:47another example.
24:49For the basic
24:51ammunition that goes
24:52into a hunting
24:53cartridge,
24:54a lot of it
24:55is made out
24:56of plastic.
24:56That plastic
24:57has already
24:58gone up,
24:58component,
24:59by 10%.
25:00That will be
25:01an added cost
25:02for everybody
25:03who is a
25:03recreational hunter
25:04or a sport hunter
25:05or a sportsman.
25:07That alone
25:08is an example.
25:09Automobiles
25:10will go up.
25:10Electric vehicles
25:11will be far
25:12more costly.
25:13The cost of energy
25:14will go much higher.
25:16And that is not
25:17going to be
25:17good news
25:17for the global
25:18economy.
25:19All right.
25:20Thank you so much
25:20for sharing
25:21your thoughts.
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