The Indian economy may come under severe stress if the country fails to prevent the downslide of the rupee caused by the West Asian crisis or US-Israel-Iran war.
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The Indian economy may come under severe stress if the country fails to prevent the downslide of the rupee, as it threatens to raise the import bill. The exchange rate, which was around INR 90 before the ongoing West Asian crisis, breached INR 95 per US dollar, putting enormous pressure on the country’s energy import bill, and in the process widening the current account deficit. For records, India meets its energy demand by importing 85-88 per cent crude oil, i.e. 800 million litres per day. So, to keep its economy stable, India needs a stable international energy market where the prices of crude do not fluctuate drastically. But the continuing disturbances in West Asian has upset all the calculations, as escalating crude price and falling rupee have created a situation where higher crude prices increase the demand for dollars and the weakening rupee makes oil more expensive. Some may argue that India will be able to get rid of the present crisis, citing how the country overcame a similar situation when the crude prices crossed $ 100 per barrel during the Russian invasion of Ukraine. But this is wishful thinking as the situations are completely different. During the Eastern European crisis, Russia provided crude oil to India at a concessional rate, which prevented the rise of the country's import bill. Now, due to global obligations, New Delhi is forced to import crude from other nations, apart from Russia.
The impact of higher import bills is already visible as a number of small-scale industries have stalled their operations. More than 700 ceramic units are closed due to fuel constraints in Gujarat’s Morbi industrial cluster. Things are similar in heavy industries too as productions in steel, aluminum and pharmaceutical sectors, among others, have considerably gone down due to rising input costs. Households and eateries are also facing crisis due to LPG shortages. All these developments will have an impact on the country’s overall growth and will directly have an impact on inflation. India’s GDP growth, which is the fastest in the world at present, may decline by around one percentage if the West Asian conflict continues for some more months. In such a scenario, balancing growth and inflation will be a herculean task.
With Asian giants Japan and South Korea facing acute energy constraints and the European nations facing another round of stagflationary pressure, things are really looking bleak. If the nations want to restore normalcy, they should put pressure on the warring nations unitedly, forcing them to settle the dispute through negotiations, rather than indulging in warfare, as war never decides a winner; rather it breeds more trouble. In this regard, the role of the United Nations (UN) becomes crucial.