India, and the world, is pining for oil and bracing for toil. The Middle East conflict has already led to a big question mark — there has already been an LPG scare, hike in airfares and the inevitable fuel price hikes once the assembly polling is done. This could lead to an increase in prices of anything from vegetables to consumer durables, not to forget a slowdown in the nation’s GDP growth rate.
PM Modi warned the nation of long-term impacts including rising energy costs in an address to Parliament in March. He spoke of disrupted trade and potential fertiliser shortages, even as he assured Parliament that India was preparing for a sustained crisis.
But at least some quarters would rather look at the silver lining on the cloud. As Albert Einstein is said to have quipped, “Every crisis is an opportunity.”
And there could well be opportunities galore for India to reposition itself in the global market.
“Capital displacement from conflict zones is real, but we need to be precise about what India can realistically capture. Portfolio capital follows liquidity and rule of law. What India can attract is operating capital: businesses that need a large domestic consumption base and were using Dubai as a regional hub. India’s pitch there is stronger than it was a decade ago, but only if we don’t pretend the macro headwinds aren’t real.” said Rishi Shah, partner and senior economist with the consultancy major Grant Thornton Bharat, adding, “I am not looking at it as all doom and gloom.”
This sense of an opportunity stems from a couple of factors. One is the fact that the present conflict would reconfigure the capital that was fleeing the battered countries in the Middle East, especially the likes of Dubai which was an economic magnet, which at least in part could come into India. Secondly, the capital of those very rich entities which will now be reinvested considering their new post-Iran realities and priorities, which will slant towards massive defence purchases, as well as widespread reconstruction (which, of course, would require Indian labour).
“You see the kind of widespread damage there, whatever has happened. And once reconstruction begins after the cessation of hostilities, it is essentially going to be Indians who are going to get the benefits of the massive construction effort that is going to happen. There will also be jobs on the security side, as well as a plethora of defence contracts and outsourced work and vendorship related to security,” said a Delhi-based jobs consultant.
Shah also believes that too much has been built up on the negative notions of a crisis like this as it used to unravel in previous times. He referred to remittances and the fear of massive job losses of Indian expats in the Gulf region, as well as the fear of price rise.
“India’s macro resilience to a remittance shock is meaningfully stronger than it was in 1990 or even 2008 — remittances as a share of GDP have declined even as absolute volumes have grown,” he said.
While India’s growth rate could slow down, and inflation could rear its head, experts like Shah believe it is not cause for undue concern. “India’s growth engine has not stalled — that much is clear. But the question isn’t whether we grow; it’s whether we grow fast enough,” he said, adding, “The conflict introduces a terms-of-trade shock via energy costs that could shave 30-50 basis points off annual growth for as long as crude stays elevated. That’s manageable, but it narrows the margin for policy error considerably.”
Tail piece: While the world has seen the unravelling of the Middle East giants of aviation like Emirates and Qatar due to the war, some observers are calling it ‘advantage Air India’. Despite the odds stacked against it — the airline is bleeding money because of the longer routes it has to take since Operation Sindoor with Pak airspace out of bounds, and that has only gotten worse with the Middle East and Central Asia corridor also getting problematic since February 28. Yet, with Tata’s deep pockets and a new CEO soon to be in place, the Gurugram-headquartered airline does have a fighting chance to grow globally into the gap left by Emirates. The question is, will the Maharaja rise to the occasion?
