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Indian Economy and the Israel-Hamas conflict: What are the Possible Advantages and Disadvantages for the Economy of India?

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Israel-Hamas War: Top 5 Possible Advantages for the Indian economy

Israel-Hamas War: Top 5 Possible Disadvantages for the Indian economy

Conclusion

On October 7, 2023, Hamas launched a surprise attack on Israel, killing hundreds of civilians and soldiers. Soon afterwards, Israel, led by Prime Minister Benjamin Netanyahu, replied with a retaliatory attack on the Gaza strip. In the weeks afterwards, the world is watching the war keenly, as more and more countries threaten to get involved in the conflict.

India has a very friendly relationship with Israel, and is on good terms with Palestine as well, which is exactly why financial experts are divided on their opinion regarding the economic impact of the ongoing conflict on the Indian subcontinent. You might be interested to get a fair idea about some possible advantages and disadvantages of the Israel-Hamas conflict on the Indian economy.

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Israel-Hamas War: Top 5 Possible Advantages for the Indian economy

While the Israel-Hamas conflict is undesirable, it could benefit the Indian economy in several ways:

1. Benefit for the Indian oil companies

If the Israel-Hamas conflict escalates and spreads to other Middle Eastern countries like Iran, oil prices could spike significantly. While this may negatively impact the Indian economy by affecting India’s import bill and inflation, it could benefit Indian oil companies.

Read on – Indian Economy in 2024: Financial Predictions by Top Experts.

2. Stronger military infrastructure for India

India is one of the largest importers of Israeli defense equipment. As per the United Nations COMTRADE database, during 2022, India imports of Arms and ammunition, parts and accessories from Israel was worth a staggering $41.09 million.

An escalation of the conflict could lead to increased defense spending by India to strengthen its military ties with Israel. Israel needs quick money to fight its war. India could stand to gain advanced defense equipment from Israel at a lower price, which would not have been the case before the war. A stronger military infrastructure for India could help the country avert potential attacks from neighboring countries like China and Pakistan, and help the Indian economy in an indirect way.

3. More opportunities for Indian IT companies

Indian IT companies like TCS, Infosys and Wipro could benefit from increased outsourcing and off shoring of work by Israeli companies amid the conflict. These IT giants may see increased demand for their outsourcing services from Israeli firms seeking cost-effective solutions.

This presents an opportunity for these companies to further strengthen their global presence and contribute to the Indian economic future. It can help in fostering stronger economic ties between India and Israel.

4. Boost for the Indian diamond trade

The diamond industry has a major contribution to the economic development in India. India is a major importer of rough diamonds from Israel. Higher insurance premiums and shipping costs during the conflict could marginally increase diamond prices, benefiting Indian diamond traders and polishers.

5. Growth for the Indian Tourism sector

Israel is a popular tourist destination for many people. A conflict in Israel during could make tourists consider other travel destinations like India. In recent years, India has emerged as a diverse and culturally rich travel hotspot, attracting tourists with its historical landmarks, vibrant festivals, and picturesque landscapes.

A shift in tourism from Israel to India could lead to increased revenue for the Indian tourism industry, fostering cultural exchange and economic growth. This can boost the Indian economy even further, keeping the economic rise of India unabated.

Israel-Hamas War: Top 5 Possible Disadvantages for the Indian economy

However, the impacts of a prolonged Israel-Hamas conflict can obviously be negative for the world economy, and of course, for the Indian economy.

1. Higher insurance premiums and shipping costs

According to experts, Indian exporters shipping goods to Israel may face higher insurance premiums and shipping costs due to the Israel-Hamas conflict. This could reduce the profits of Indian exporters in the short term.

The ongoing conflict has led to increased risks in the region, which insurance providers consider when setting rates. Also, disruptions in logistics and transportation due to heightened security measures can result in delays and increased expenses.

While diplomatic efforts continue to address the situation, business owners are advised to stay updated on the evolving situation and make necessary adjustments to their trade strategies to minimize potential financial impacts.

2. Disruption of supply chains

If operations at major Israeli ports like Haifa, Ashdod and Eilat are disrupted, it could seriously impact trade and Indian economic growth. These ports handle shipments of goods imported by India from Israel.  Disruptions in trade between India and Israel might lead to potential shortages and price increases for certain household items in India. The impact on trade relations emphasizes the need for stability and peaceful resolutions in the region to ensure a favorable business environment for both countries.

3. Rise in crude oil prices

The conflict, if prolonged, could lead to a rise in crude oil prices as Israel is located in a major oil producing region. India imports most of its oil requirements and higher prices could fuel inflation.

A prolonged conflict could have cascading effects on global energy markets, impacting not only the Indian economy but the world economy as well. Increased oil prices may strain India’s fiscal balance, affect energy-dependent industries, and raise transportation costs, potentially causing economic challenges for the nation and its citizens.

Want to know about the India GDP growth? Read on – Top 10 Biggest Economies in the World 2023: GDP and GDP Per-Capita Comparison.

4. Weakening of the Indian rupee

Higher crude oil prices and uncertainty due to the conflict could lead to foreign capital outflows from India, putting pressure on the rupee. A weaker currency impacts our imports and current account deficit.

According to world economic news, the geopolitical tensions in the region have the potential to disrupt global supply chains, affecting various industries, including manufacturing and technology, which are vital for India’s economic growth. Escalating costs of essential commodities and energy resources can also lead to inflationary pressures, impacting consumers and businesses alike.

To mitigate these challenges for the Indian economy, the Indian government and central bank must carefully manage fiscal and monetary policies, diversify energy sources, and work toward enhancing trade resilience and diplomatic solutions to maintain economic stability amid the evolving geopolitical landscape.

5. Delay in India-Middle East economic corridor plans

The Israel-Palestine war may delay India’s plans to build an economic corridor connecting India, the Middle East and Europe. This could impact the Indian economy and India’s economic interests in the region.

Any delays or instability in the region due to the conflict could hinder this strategic project, potentially impacting India’s trade routes and energy supply lines. It underscores the importance of diplomacy and peace-building efforts to ensure regional stability and safeguard the Indian economy while contributing to broader global peace initiatives.

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Conclusion

The future of Indian economy looks stable at the moment. It seems that the conflict between Israel and Hamas is not having much of an impact on the Indian economy. This is quite reassuring for Indian investors and traders. If the war gets prolonged and more and more countries get involved in the conflict there could be negative economic ramifications for the entire world and not just India. Naturally, Indian investors and traders are advised to keep a close watch on global economy news about the latest happenings about the war and the Indian economy graph in general.

Disclaimer: The views expressed here are based on economic statistics and theories by financial experts, and the actual outcome might be different from what is written here.


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